Crime and Conspicuous Consumption

Daniel Mejia and Pascual Restrepo

No 7716, Documentos CEDE from Universidad de los Andes, Facultad de Economía, CEDE

Abstract: This paper develops an incomplete information model wherein individuals face a trade-off between status and security when deciding the optimal amount of conspicuous consumption. On the one hand, we assume that individuals derive utility from status,which is obtained by signaling wealth through the consumption of an observable good. On the other hand, the increased consumption of observable goods also signals wealth to a criminal audience, thus increasing the chance of becoming target for criminal activities. The paper proposes an information channel through which crime distorts consumption decisions; this channel is different in nature from the channel whereby crime acts as a direct tax on observable and stealable consumption goods. More precisely, we argue that, in the presence of crime, individuals reduce their consumption ofobservable goods, not only because criminals may steal these goods, but also because it reveals information that could be used by criminals to target individuals´ wealth. We test our model´s predictions using U.S. data, and find that crime has a negativeand significant impact on conspicuous consumption; also that this effect cannot be explained by the fact that some of these goods tend to be stolen by criminals. Finally, we show that this result is robust to different specifications and alternative measuresof conspicuous consumption and crime.

Keywords: Crime; Conspicuous Consumption; Concerns for Status (search for similar items in EconPapers)
JEL-codes: D11 D12 K42 (search for similar items in EconPapers)
Pages: 49
Date: 2010-11-08
New Economics Papers: this item is included in nep-lam and nep-law
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Journal Article: Crime and conspicuous consumption (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:col:000089:007716

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