Does Crime pay? Criminal versus Human Capital

The first attempt to study crime using an economic point of view is provided by Gary Becker, 1968. Following Becker’s seminal work, the development of models analysing criminal choices identified features enabling... [ view full abstract ]

The first attempt to study crime using an economic point of view is provided by Gary Becker, 1968. Following Becker’s seminal work, the development of models analysing criminal choices identified features enabling researchers to explain illegal behaviour, not only within a static framework but also in a dynamic one. This helped shed further light on the mechanism leading to criminal success and to a career in the illicit sector.

This study presents a dynamic discrete choices model to understand how young men choose between human capital and criminal capital using data from the National Longitudinal Surveys of Youth 1997 (NLSY97). The model offers a framework able to unify empirical evidence and theories produced in the economics of crime literature studying criminal capital. Its development accounts for the formation of skills that can be used in legal and illegal markets and the effect of their accumulation on the possible rewards in each sector. Estimation of the parameters included in the model is conducted through the simulated method of moments, with results indicating a strong role of social criminal capital in defining successful criminal activity. Similarly, the estimated returns to experience in the illegal sector show a larger premium for criminal activity compared to legal one. However, the percentage of young men committing offences decreases when the opportunity cost of crime increases. Counterfactual policy exercise, obtained for the model at the estimated parameters, suggests that policies aimed at augmenting human capital for previous offenders can have an important effect over short and long-term.