Ruhr Economic Papers

Ruhr Economic Papers #269

Crime, Inequality, and the Private Provision of Security

by Jan Heufer

TU Dortmund, 07/2011, 44 S./p., 8 Euro, ISBN 978-3-86788-314-6

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Abstract

In a high-crime environment with many high-income citizens, private security companies which offer protection against crime can flourish. In this article crime is modelled as a game where richer victims yield a higher return on crime, but with decreasing returns to crime as more criminals choose crime to supplement their income. Private security providers offer protection against crime and face Cournot competition. The model allows for the analysis of market clearing prices for effort against crime. Among the implications of the model are that rising inequality will lead to more expenditure on protection against crime, and that the upper income classes are suffering from the same or lower crime density than the middle income class. Taking into account the response of criminals and victims, rising inequality can actually lead to less crime if either (i) the legal income opportunity of the marginal criminal increases or (ii) marginal utility from income decreases and richer individuals spend a higher proportion of their income on protection (i.e. protection is a superior good). Often the middle class suffers from higher crime densities as inequality increases, as the increased spending on protection by the upper class (i) shifts crime to the middle class and (ii) increases market prices for protection, leaving the middle class with less affordable protection against crime. Emigration of the middle class can then further increase inequality. This highlights the importance of taking into account the response of individuals against crime and shows that the link between inequality and crime is a complex one.

JEL-Classification: D10, D30, D40, K42

Keywords: Crime; inequality; competition of security companies; private enforcement of law; private provision of security

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