The Costs of Crime and Violence in Latin America and the Caribbean

By: Ana Corbacho and Carlos Scartascini *

Crime and violence are major concerns in Latin America and the Caribbean. The region suffers from the highest homicide rate in the world, reaching over 25 deaths per 100,000 people in recent years, tripling the global average.

The region is also affected by widespread common crime, which victimizes more than 10 percent of the population and 30 percent of firms. Not surprisingly, crime and violence have climbed the ranks in public opinion surveys to showcase as the top concern of citizens in the last few years.

As a major policy challenge, crime and violence take up a substantial amount of governments’ resources and efforts. However, there is much to be done to understand the root causes as well as the negative consequences of these phenomena.

The Inter-American Development Bank (IDB) has pioneered a rigorous research agenda that aims to quantify the different dimensions of the cost of crime and violence.

“Costing” crime is a first step to inform the public policy debate and provide tools for systematic analysis of the cost-effectiveness of citizen security policies promoted by governments.

Some of this work was presented at an IDB sponsored event on January 24-25. The preliminary results are both disheartening—the costs of crime are extremely high—and encouraging: home-grown policy innovations in the region are starting to show promise in reducing the crime epidemic.

What are the main conclusions of these studies?

Starting with the cost estimates, Aboal et al (2013) find that the cost of crime in Uruguay amounts to at least 3% of GDP. These estimates include both the tangible public and private expenditures to prevent crime, such as spending on private security, and as a consequence of crime, such as the costs of the legal and prison system, and the intangible costs from being a victim.

These costs, particularly the intangible may be grossly underestimated, as the authors acknowledge because the impact of crime has potentially many complex ramifications.

For example, as Aguero (2013) finds, domestic violence, a terrible tragedy in many Latin American and Caribbean countries, has negative consequences beyond the direct impact on women who are victims. Domestic violence also affects the health of children in violent households.

The paper shows that Peruvian children whose mothers suffered from domestic violence weight less, are less likely to receive vaccines, and are more likely to suffer from disease. Therefore, violence against women has a worrisome intergenerational cost. Given that almost 40% of women in Peru report having been victim of abuse, these results are not negligible.

Koppensteiner and Manacorda (2013) also report the impact of violence on children’s health at a very early age. They find that pregnant women who live in neighborhoods with high homicides during the first trimester are more likely to have babies with low birth weight.

Results are particularly pronounced among children of poorly educated mothers, exacerbating the disadvantage that these children already suffer due to their low socioeconomic status.

In addition to affecting human capital, crime and violence may also affect property values. Vetter et al (2013) estimate that increasing the sense of security in the home by one standard deviation increases average home values in Brazil in more than $750.

If this number were applied to all households included in the study area, the total amount would rise to more than $13 billion.

Moreover, crime reduces economic opportunities. In Mexico, an increase in 1 homicide per 100,000 inhabitants from 2006 to 2010 is related to a decrease in the proportion of working people by 0.21%, an increase in the proportion of unoccupied labor force by 0.13%, and a decrease in the proportion of business owners by 0.06%.

These changes accompany an equally worrying trend. In those municipalities with persistent levels of drug related violence after 2006, electricity consumption trailed levels in less violent municipalities by almost 6%. As Robles et al (2013) indicate, lower electricity consumption suggests that there have been significant drops in local economic development.

Is everything lost?

Fortunately, not. New evidence is mounting on the impact of policies that may increase crime as well as those that may help prevent crime. That is the case, for example, of changes in the deterrent mechanisms for youth crime in Colombia.

As Ibañez et al (2013) report, a new law that decreased penalization faced by Colombian youths may have reduced perceived costs facing young adolescents to engage in criminal activities and reduced their schooling achievement. This result is particularly relevant for children of relatively less educated parents. In turn, the increase in penalties that takes place for those who reach adulthood seems to have a dissuasive effect.

Crime falls to half once youths reach 18 years of age (compared to youths slightly younger than 18), although most of the reduction due to the penalties vanishes as they grow older (Guarin et al 2013).

On evidence of crime prevention, the roll out of CEMs (Centros de Emergencia Mujer) seems to be a helpful mechanism to reach women who suffer domestic violence (Aguero 2013). These results complement other work emerging from the region.

For example, Chioda et al (2013) finds positive spillovers from conditional cash transfers on crime in Brazil. Restricting alcohol sales seems to reduce property crime (Mejia 2013), and using electronic monitoring systems instead of prison may be a cost-effective way to reduce crime recidivism (Di Tella and Schardgrodsky 2013). Finally, Mejía et al (2012) find that local community policing models may have significant payoffs in crime prevention.

In short, the crime and violence situation in the region is dire. And the costs can be astronomical for a region with many unsatisfied needs. Still, there is some light at the end of the tunnel. Policy innovations, coupled with impact evaluation, are starting to show some promise in preventing crime. A better future for LAC citizens requires two things:

1. Learning what works and what doesn’t work so every dollar or peso invested has a high return. The IDB is committed to this endeavor.
2. Political systems that allow and favor the implementation of these policies. Here, citizens and policymakers have to find the way to work the wrinkles out.

Ana Corbacho is Sector Economic Advisor at the Inter-American Development Bank.

Carlos Scartascini is Principal Economist at the Inter-American Development Bank.

_{The information and opinions presented in this document are entirely those of the authors, and no endorsement by the Inter-American Development Bank, its Board of Executive Directors, or the countries they represent is expressed or implied.}

_{This blog also appears in LACEA}