ii An Intertemporal Model of Rational Criminal Choice

This research presents a dynamic model of crime in which agents anticipate future consequences of their actions. Current period decisions affect future outcomes by a process of capital accumulation. While investigating the role of human capital, the focus of our study is on a form of capital that has received somewhat less attention in the literature, social capital. Social capital is an index of one's 'stock' in society. Introduction of social capital into the utility function results in an intertemporally nonseparable preference structure which admits state dependence in the decision to participate in crime. Our model is empirically implemented using panel data on a sample from the 1958 Philadelphia Birth Cohort Study. In estimation, we take account of unobserved choices in states not realized, which potentially depend on individual specific heterogeneity, by using simulation techniques. Our results provide evidence of state dependence in the decision to participate in crime. We also find that the initial level of social capital stock is important in determining the pattern of criminal involvement in adulthood. 1. INTRODUCTION Criminal choice has traditionally been studied in economics using a static time allocation model, imposing myopic rationality i. However, the empirical relationship referred to as the age-crime profile Leung (1994)) shows aggregate arrests to be a unimodal positively skewed function of age across different time periods and countries. This empirical phenomenon, along with ethnographic evidence from the criminology literature (Sampson and Laub , 1993), suggests that life-cycle factors are important in explaining criminal choice. To explore this issue, we present a dynamic model of crime in which agents anticipate future consequences of their actions. Further, we adopt an intertemporally nonseparable preference structure which is consistent with the existence of state dependence in the decision to participate in crime. In developing an intertemporal model of crime, we draw on literature from labor supply, which allows state dependence to operate through the individual's preference structure and earnings. ii In these models, a capital stock is introduced into the utility function so that optimal current period decisions take into account their affect on future utility through the capital accumulation process iii. Current decisions also impact future welfare through the effect of the capital stock on life-cycle wages. Our intertemporal model of crime assumes that an individual's preferences and earnings depend upon his stock of social capital iv , where social capital is defined as an index of one's 'stock' in …