ESTIMATING THE ECONOMIC-MODEL OF CRIME WITH PANEL-DATA

Previous attempts at estimating the economic model of crime with aggregate data relied heavily on cross-section econometric techniques, and therefore do not control for unobserved heterogeneity. This is even true of studies which estimated simultaneous equations models. Using a new panel dataset of North Carolina counties, we exploit both single and simultaneous equations panel data estimators to address two sources of endogeneity: unobserved heterogeneity and conventional simultaneity. Our results suggest that both labor market and criminal justice strategies are important in deterring crime, but that the effectiveness of law enforcement incentives has been greatly overstated.