Estimating a crime equation in the presence of organized crime: Evidence from Italy

Abstract

We estimate a crime equation using a panel dataset of Italian regions for the period 1980 to 1989. Four different crimes are considered: murder, theft, robbery, and fraud. To take account of the presence of criminal organizations—a salient feature of the Italian context and a relevant factor usually disregarded by the empirical literature—we exploit the panel structure with unobservable individual components. Our results suggest that: (i) the probability of punishment is relatively more effective than both the severity of punishment and the efficiency of police authority in deterring crime; (ii) among the variables representing the opportunity costs of participating in illegal activities, the rate of unemployment, the value of public works started by government, and the proportion of people employed in the service sector have a significant effect; (iii) for three types of crime the regional unobservable component is correlated with the regressors; (iv) spillovers from drug consumption to theft are substantial; and (v) with the exception of fraud, the results are in contrast with the predictions of the standard economic model of crime.