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 that estimated simultaneous equations models. Using a new panel data set of North Carolina counties, the authors exploit both single and simultaneous equations panel data estimators to address two sources of endogeneity: unobserved heterogeneity and conventional simultaneity. Their 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. Copyright 1994 by MIT Press.