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Essays on macroeconomic models of crime and the labor market.

Cozzi, M.; (2008) Essays on macroeconomic models of crime and the labor market. Doctoral thesis , University of London. Green open access

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Abstract

This thesis develops three dynamic quantitative equilibrium models with heterogeneous agents, tackling issues related to the criminal participation of individuals and the labor market. The first chapter studies the effect of hard drugs addiction on property crimes and hard drugs selling in the US. A dynamic equilibrium model quantifying how much of the observed property crime rate is accounted for by hard drugs addiction is specified and estimated. The model is framed in both a rational addiction and a rational crime participation environment. The results show that a substantial part of property crimes, approximately 26%, is accounted for by predatory crime to finance addiction. The estimated model is in turn used to quantify the economic consequences of a compulsory drug treatment scheme for all arrested felons, and the effects of a legalization policy. The first policy experiment suggests a decrease in the property crime rate by 11%, while under the new legal regime the property crime rate is found to decrease by 18%. The second chapter studies the effects of both labor market conditions and asset poverty on the property crimes involvement of American males. The property crimes arrest rate has consistently been four times higher for black males if compared to white ones. Another set of stylized facts show for the first demographic group lower educational levels and worse labor market performances. A dynamic equilibrium model is developed, exploiting these facts to quantitatively assess the race crime gap. The model is calibrated relying on US data and solved numerically. Simulation results show that the observed poverty and labor market outcomes account for as much as 90% of the arrest rates ratio. Finally, the model is used to compare two alternative policy experiments aimed at reducing the aggregate crime rate: increasing the expenditure on police seems to be cost effective, when compared to an equally expensive lump-sum subsidy targeted to the high school dropouts. The last chapter studies the equilibrium welfare effects of introducing mandated severance payments in a labor market with costly mobility, where self-insurance through a riskless asset is the only way to smooth fluctuations in labor income due to unemployment shocks. The framework allows for wage flexibility at the level of the individual firm-worker match. Wages vary with both tenure and productivity of the workers. When severance payments are introduced, the firm can potentially undo their effect by modify ing the wage profile. Workers entry wages fall by the expected present value of the future payment. However, because of incomplete markets, workers are unlikely to be indifferent about the slope of the wage profile. The model is solved numerically and calibrated to the US economy. We compare a welfare measure for the baseline economy, i.e. without severance payments, to those of a series of counterfactual economies where the severance payments are introduced at increasing levels. Welfare gains and costs are heterogeneous in the population but seem to be quantitatively small for plausible values of the severance payments.

Type: Thesis (Doctoral)
Title: Essays on macroeconomic models of crime and the labor market.
Identifier: PQ ETD:592540
Open access status: An open access version is available from UCL Discovery
Language: English
Additional information: Thesis digitised by Proquest
UCL classification: UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of SandHS > Dept of Economics
URI: https://discovery.ucl.ac.uk/id/eprint/1445222
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