Microeconomics Macroeconomics and Property Crime

Within the study of economics there are two basic disciplines, microeconomics, broadly described as a bottom up approach to the study of economic theory, and macroeconomics, broadly described as a top down approach to the study of economic theory. While both studies within economics concern themselves with resources and attempts to allocate resources, microeconomics examines the behaviors of individual entities, whether that entity is a corporation, a consumer, or a government, while macroeconomics concerns itself with the collected behavior of these individuals.

While microeconomics studies the choices that individual entities make and the reasons why they make them, macroeconomics studies the overall phenomena resulting from or contributing to these choices. Jeffrey Perloff explains that microeconomics concerns itself with local markets where prices influence the determination of which goods and services are to be produced, how these goods and services will be produced, and who will benefit from their production, (2007). Generally, macroeconomics is concerned with six major factors that determine the health of an economy: 1. national income, 2. prices, 3. employment levels, 4. fiscal and monetary policy, 5. consumption and investment, and 6. balance of payments, (“Overview: Macroeconomics”, 2008), and macroeconomists watch these six indicators closely to advise government policy. High unemployment levels lead to the scarcity of a basic resource, income, and therefore affect an individual’s ability to pay for goods and services needed. During economic recessions, one microeconomic effect of these increasing unemployment levels is an increase in property crime. These aggregate increases in property crime can also have a macroeconomic effect.

On a microeconomic level, Bijou Lester uses a cost benefit analysis to explain the increasing likelihood of an individual suffering from long term unemployment to resort to theft due to increased profitability of property crime, (1995). In a downturned economy more people are likely to turn to an underground economy seeking discounted pricing. This increases the demand for stolen goods and therefore pricing for black market goods becomes higher. This phenomenon translates into an increased and more profitable market for property theft criminals. The higher the unemployment level, the longer the period of time an individual is likely to be unemployed and the more likely an individual is to run out of unemployment compensation benefits. These factors converge to create an increased and more profitably market, and therefore a greater the potential for benefit for the criminal. Additionally, Daniel Lomba presents a microeconomic analysis concerning criminal markets that indicates that criminals prefer to choose to commit crimes in one location due to an increased probability for success and an increased level of income generated from their crime, (2008). Additional factors included in the decision making process include that criminals are more likely to be apprehended should they venture out of neighborhoods that they know and that they are less likely to know what is available in adjacent neighborhoods. Although Lomba does present the idea that there is a certain amount of spillover between neighborhoods, he goes on to present an urban economic theory that indicates that demand present in one neighborhood is unlikely in adjacent neighborhoods.

On a macroeconomic level, during difficult economic times, especially when unemployment is high, the subsequent increase of property crime can affect a country’s overall economic output or national income. In his 1999 paper presented to the Annual World Bank Conference on Development Economics, Francois Bourguignon, discusses the idea that macroeconomic volatility, in combination with inequality and poverty, can precipitate even higher crime waves during recessions. Countries that ordinarily suffer from the greatest unequal distribution of wealth are particularly affected during major recessionary periods. Recessions, by increasing the numbers of impoverished people have a comparable effect on crime. Ensuing crime waves resulting from of a major economic recession in light of preexisting poverty can result in losses as high as 2% of a country’s GDP, (Bourguignon, p. 3). Bourguignon additionally notes that the resulting increases in criminal behavior due to these conditions are more likely to concentrate in metropolitan areas where the social costs are greater and where it is potentially more disruptive to economic efficiency and growth.

In closing, as the current global recession continues, we should expect to see a significant increase in property crime in major metropolitan areas. Individuals displaced due to unemployment will increasingly seek benefit through criminal behavior in all areas of the world affected by the current recession. In turn, this increase in crime will not only affect recovery in our local communities but also affect the recovery of the global economy by slowing down growth in these countries.

References:

(2008). “Overview: Macroeconomics.” Everyday Finance: Economics, Personal Money Management, and Entrepreneurship. Vol. 1. Detroit: Gale. Retrieved from Gale Virtual Reference Library.

Bourguignon, F. (1999, April). Crime, violence and inequitable development. Paper presented at the Annual World Bank Conference on Developmental Economics, Washington, D.C. Retrieved from http://siteresources.worldbank.org/INTABCDEWASHINGTON1999/Resources/bourg.pdf

Lester, B. (1995, May). Property crime and unemployment: a new perspective. Applied Economics Letters, 2 (5), 159-162. Retrieved from EBSCOhost Business Source Complete

Lomba, D. (2008). A theoretical model of a criminal’s location choice. International Journal of Business Research, 8 (3), 149-155. Retrieved from EBSCOhost Business Source Complete.

Perloff, J. M. (2007). Microeconomics (4th ed.). New York: Pearson Addison Wesley.