Abstract

http://ssrn.com/abstract=225709
 
 

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Measuring Positive Externalities from Unobservable Victim Precaution: An Empirical Analysis of Lojack


Ian Ayres


Yale University - Yale Law School; Yale University - Yale School of Management

Steven D. Levitt


University of Chicago; National Bureau of Economic Research (NBER); American Bar Foundation

February 1997

NBER Working Paper No. w5928

Abstract:     
Private expenditures on crime reduction have potentially important externalities. Observable measures such as barbed-wire fences and deadbolt locks may shift crime to those who are unprotected, imposing a negative externality. Unobservable precautions, on the other hand, may provide positive externalities since criminals cannot determine a priori who is protected. Focusing on one specific form of victim precaution, Lojack, we provide the first thorough empirical analysis of the magnitude of such externalities. Because installing Lojack does not reduce the likelihood that an individual car will be stolen, any decrease in the aggregate crime rates due to Lojack is an externality from the perspective of the individual Lojack purchaser. We find that the presence of Lojack is associated with a sharp fall in auto theft in central cities and a more modest decline in the remainder of the state. Rates of other crimes do not change appreciably. Our estimates suggest that, at least historically, the marginal social benefit of an additional unit of Lojack has been as much as 15 times greater than the marginal social cost in high crime areas. Those who install Lojack in their cars, however, obtain less than ten percent of the total social benefits of Lojack, causing Lojack to be undersupplied by the free market. Current insurance subsidies for the installation of Lojack appear to be well below the socially optimal level.

Number of Pages in PDF File: 52

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Date posted: July 24, 2000  

Suggested Citation

Ayres, Ian and Levitt, Steven D., Measuring Positive Externalities from Unobservable Victim Precaution: An Empirical Analysis of Lojack (February 1997). NBER Working Paper No. w5928. Available at SSRN: http://ssrn.com/abstract=225709

Contact Information

Ian Ayres (Contact Author)
Yale University - Yale Law School ( email )
P.O. Box 208215
New Haven, CT 06520-8215
United States
203-432-7101 (Phone)
203-432-2592 (Fax)
Yale University - Yale School of Management
135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States
Steven D. Levitt
University of Chicago ( email )
1126 East 59th Street
Chicago, IL 60637
United States
773-834-1862 (Phone)
773-702-8490 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
American Bar Foundation
750 N. Lake Shore Drive
Chicago, IL 60611
United States
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