Breaking Bad: How Health Shocks Prompt Crime

Exploiting plausibly exogenous variations in the timing of cancer diagnoses, we establish that health shocks elicit a large and persistent increase in the probability of committing a crime. This effect materializes in a substantial rise in both first crimes and re-offenses. We uncover evidence for two mechanisms. First, an economic motive leads individuals to compensate the loss of legal revenues with illegal earnings. Second, cancer patients face lower expected cost of punishment through a lower survival probability. Welfare programs that alleviate the economic repercussions of health shocks are effective at mitigating the ensuing negative externality on society. (JEL D91, G22, G51, I12, I13, K42)