Measuring positive externalities from unobservable victim precaution: An empirical analysis of Lojack

Lojack is a hidden radio-transmitter device used for retrieving stolen vehicles. Because there is no external indication that Lojack has been installed, it does not directly affect the likelihood that a protected car will be stolen. There may, however, be positive externalities due to general deterrence. We find that the availability of Lojack is associated with a sharp fall in auto theft. Rates of other crime do not change appreciably. At least historically, the marginal social benefit of an additional unit of Lojack has been fifteen times greater than the marginal social cost in high crime areas. Those who install Lojack, however, obtain less than 10 percent of the total social benefits, leading to underprovision by the market.