Deterrence and Geographical Externalities in Auto Theft

AMIS is a non-profit organization funded by insurance companies that compiles industry-wide theft and accident rates. These statistics are then used by members of the association to price insurance contracts. AMIS associated companies have a market share of over 80% of the automobile insurance market. Insurance companies not associated to AMIS are self-insured corporations that do not offer individual insurance to the public. In this sense, AMIS insures the population of individually-owned vehicles. The database is generated continuously: when an insured vehicle is stolen, the owner calls his insurance company to file a report; as soon as the employee of the insurance company fills out the electronic report for the company’s use, a copy of it is automatically sent to the compiling system at AMIS. Under this system, if a stolen vehicle is recovered, the report of the robbery is still preserved. As documented by Mansfield et al. (1974), failure to report insured missing vehicles is rare. The econometric analysis uses variation in theft risk over time to identify the effect of Lojack. For that reason, the unit of observation should be car models whose theft risk can be followed throughout the analysis period. All theft cases of cars sold up to 1998 but stolen between 1999 and 2004 were not used as units of observation because of lack of data on the stock susceptible to being stolen. A second group of discarded observations consists of car models introduced into the market after Lojack was implemented. For these vehicles, it is impossible to analyze theft risk before Lojack was introduced. Similarly, some models were discontinued before the Lojack intervention. For these models, there is no posttreatment data available to analyze theft behavior, so they are left out. After these deletions, I have data on car models for which information on theft risk is available before and after Lojack was implemented. In total, there are 69 model-groups for which I have up to 21 observations in each of 32 Mexican states. The panel is unbalanced with triangular matrix form: For each model and state, I have up to 6 annual theft observations for the 1999 vintage, 5 annual theft observations for the 2000 vintage, and so on, with only one theft observation for the 2004 vintage. Throughout the paper, the term model is used to refer to the groupings of vehicles in Table 1. Table 2 provides the Lojack models that participated in the Lojack