Faculty of Economics and Business Administration Publications Database

Crime and Education in a Model of Information Transmission

Cortés, Darwin
Maldonado, Darío
Volume: 91
Pages: 71 - 93
Link External Source: Online Version
Year: 2020
Keywords: Human capital; The economics of rumours; Social interactions; Urban economics

We model the decisions of young individuals to stay in school or drop out and engage in criminal activities. We build on the literature on human capital and crime engagement and use the framework of Banerjee (1993) that assumes that the information needed to engage in crime arrives in the form of a rumour and that individuals update their beliefs about the profitability of crime relative to education. These assumptions allow us to study the effect of social interactions on crime. In our model, we investigate informational spillovers from the actions of talented students to less talented students. We show that policies that decrease the cost of education for talented students may increase the vulnerability of less talented students to crime. The effect is exacerbated when students do not fully understand the underlying learning dynamics.