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Life among the liquidity constrained
This paper tests the hypothesis that the timing of welfare payments affects criminal activity. Analysis of daily reported incidents of major crimes in twelve U.S. cities reveals an increase in crime over the course of monthly welfare payment cycles. This increase reflects an increase in crimes that are likely to have a direct financial motivation like burglary, larceny-theft, motor vehicle theft, and robbery, as opposed to other kinds of crime like arson, assault, homicide, and rape. Temporal patterns in crime are observed in jurisdictions in which disbursements are focused at the beginning of monthly welfare payment cycles and not in jurisdictions in which disbursements are relatively more staggered.
Here is the link, here are non-gated versions.
Posted by Tyler Cowen on June 14, 2008 at 07:56 AM in Law | Permalink
Comments
For whatever reason I couldn't use the ungated link. I found the article in working paper form on Foley's website though: http://www.people.hbs.edu/ffoley/Crime.pdf
Posted by: Simon Halliday at Jun 14, 2008 8:36:03 AM
Coincidentally, the 15th falls on a Sunday, so people will be getting their checks a day late. The next two days should be interesting, we're certainly expecting an increase in activity at where I work this weekend ...
Posted by: Hei Lun Chan at Jun 14, 2008 10:37:36 AM
"Why do you rob banks?"
"Because that's where the money is."
Attributed to Willie Sutton
"Why do you rob shortly after the welfare checks arrive?"
"Because that's when the money is."
Posted by: Seth Burn at Jun 14, 2008 12:55:36 PM
Is there a case to be made that the welfare checks aren't big enough? Could they ever be big enough?
If the motivation to rob is to get money, why isn't that desire for money motivating entrepreneurial activity?
Posted by: Max at Jun 14, 2008 1:17:37 PM
Max: It is.
As for legitimate (read: Legal) entrepreneurial activity, perhaps the problem is that the entrepreneurs om question simply feal they have a greater expectation committing illegal acts than legal ones.
Posted by: Seth Burn at Jun 14, 2008 1:33:09 PM
I wonder if moving payments to a weekly cycle, while holding total payments equal, would then permanently lower crime? Liquidity constraints bind for shorter periods with more frequent payments. Then again, rent and other bills fall on monthly cycles, so I have never understood the popularity of biweekly or weekly pay. That said, I have heard many people tell me of the value of such cycling for regular jobs.
Posted by: liberalarts at Jun 14, 2008 3:16:11 PM
First, Max: it is entrepreneurial, but the problem is that it doesn't create value (unless the utility gain from the robber outweighs the loss from the rob-ee)
Second, I think what's more important than the "liquidity constrained" angle is the fact that this flies in the face of the neoclassical life-cycle model of consumption smoothing over time. If people acted in that way, then this trend wouldn't appear: they wouldn't be short on cash at the end of the week/month/whatever because they smoothed consumption, and criminals would spread their "work" over time, not wait until the end of the week/month.
Posted by: brian at Jun 14, 2008 3:50:28 PM
Doesn't consumption smoothing require access to credit and understanding of how to use it?
Posted by: Jacqueline at Jun 14, 2008 5:00:26 PM
Do not try to mutilate what I said with dumbass word games about the meaning of "entrepreneurial." That word has a common and well understood meaning. I will note, to insure clarity, that dumbass also has a common and well understood meaning.
Posted by: Max at Jun 14, 2008 5:52:45 PM
I wonder if payday lending reduces crime then.
Posted by: jsalvati at Jun 14, 2008 8:19:09 PM
Conclusion: "More crime takes place when more time has passed since welfare
payments occurred."
Sort of a thumbsucker, isn't it?
Posted by: vanderleun at Jun 14, 2008 10:48:53 PM
"Do not try to mutilate what I said with dumbass word games about the meaning of "entrepreneurial." That word has a common and well understood meaning. I will note, to insure clarity, that dumbass also has a common and well understood meaning."
Max,
No need to add the clarification. You have already given us a perfect example.
Posted by: Adam Hyland at Jun 14, 2008 10:58:35 PM
Jsalvati: Probably more than we think.
As for Jacqueline's question, I'm sure the implication you would like to make is more important to you than the answer to your question.
In some sense many Americans are ignorant of the nature of credit (and they certainly don't have access to it). But that doesn't make them non-economic actors. The assumption (and Jacqueline really is begging the question here) that they are not is deeply flawed. But they aren't angels wronged by society. The people robbing liquor stores are not the same people driving to work every day. There are deep, fundamental differences in how people behave in distinct situations. Time preferences are different--probably (as this research suggests) so radically different as to violate transitivity with a positive discount factor.
But don't jump out and suggest that people in the inner city are too dumb to practice consumption smoothing.
Posted by: Adam Hyland at Jun 14, 2008 11:12:34 PM
Those of us who have lived in the ghetto also know that pizza deliveries spike massively on the first Friday/Saturday of the month. A friend of mine was a delivery driver and complained about the "first Friday" phenomenon pretty often.
Posted by: mr commenter person at Jun 15, 2008 12:47:13 AM
First: "Doesn't consumption smoothing require access to credit and understanding of how to use it?" Yes, but if that would predict people taking loans when income is low to pay for consumption later. This is usually used regarding low income early in life, paid for later in life; not taking a loan on Thursday, paying it back on Monday, and taking another loan out on the following Thursday. Consumption smoothing would predict taking your check and smoothing your costs according to that check over the time period until the next one arrives. It would not be economically rational to go back and forth repeatedly between negative and positive saving. At least not according to the life cycle model.
Second: "Time preferences are different--probably (as this research suggests) so radically different as to violate transitivity with a positive discount factor." But isn't transitivity a requirement of economic rationality?
Posted by: brian at Jun 15, 2008 6:09:25 AM
Max: Off the Books was heavily recommended by this blog last year, is brilliant, and answers your question. Go read it.
Posted by: Andromeda at Jun 15, 2008 10:15:06 AM
I believe that welfare recipients have their money electronically deposited. Thus, a smart robber would wait by the ATM machine and rob after a withdrawal.
Posted by: Mike Fladlien at Jun 15, 2008 10:55:53 AM
What percentage of welfare recipients even *have* bank accounts into which they can receive electronic deposits?
A 2006 article in the Economist reported, "In America at least 12m households have no bank account—are “unbanked”, in the industry's ugly jargon. Once unnaturalised immigrants and the “underbanked”—an even uglier term for those with a low credit score or none—are added, some estimates exceed 40m."
http://www.economist.com/finance/displaystory.cfm?story_id=6889252
Posted by: Jacqueline at Jun 15, 2008 11:54:44 AM
I believe it is a state law in Iowa that you must have a checking account in order to receive your Title 19 payment. I'm will check with my bank on Monday.
Posted by: Mike Fladlien at Jun 15, 2008 1:02:14 PM
Illegal and temporary immigrants are also called "Walking ATMs" so the poor will target the poor or the unfortunate.
@ Jsalvati, I would say Payday would exacerbate crime with their massive penalties when entering into contract with them, just like Quick-Loans will hit people with 1000% interests rates. All the same in such shady business.
@ Max, That entrepreneurial spirit doesn't exist without a stable environment or education. Even then statistically the only people that motivated to enter in to a business are those with stable jobs from beforehand. The government would be well off if they could first stop the real estate industry from stigmatizing urban populations, then create programs to test and train entrepreneurial individuals in the down trodden-areas, and finally create access to loans for them. Its not unrealistic, just need to test out programs until one works.
Posted by: Gunnar W at Jun 15, 2008 4:17:00 PM
I take issue with that last comment; I'm muddling through growing a business and have never had a steady income. Despite a solid mix of success and failure, I feel in my gut that I can persevere -- no real basis for that hope, but confidence in myself and two kids to support. I am also convinced that had I worked for someone else for too long, I would have lost my drive and just preferred a steady income instead. So the notion that you can 'train' people to be entrepreneurial is complete nonsense -- you can probably just train them to attend entrepreneurialism courses and lecture to others about their (absent) innovative spirit. Risk-taking on the street is probably much better preparation for running a business.
Posted by: Gamut at Jun 15, 2008 5:57:52 PM
Oh, and the promise of future riches helps keep the flame pretty damn well.
Posted by: Gamut at Jun 15, 2008 5:59:46 PM
Iowa does not make welfare recipients have a savings or checking account. I was wrong.
Posted by: Mike Fladlien at Jun 18, 2008 6:38:13 AM
