As a form of financial abandonment, arson may be profitable if property values sink below insured replacement values. Testing this hypothesis using general labor market conditions to reflect property values in Nashville, Tennessee, Spillman and Zak (1979, 37–43) found no support for the proposition. We measure property values directly rather than assuming they are approximated by labor market conditions, and find strong evidence that rising (falling) property values and decreasing (increasing) mortgage rates are associated with lower (higher) arson rates. Like Spillman and Zak, we observe no relationship between labor market conditions and arson.
References
1.
BeckerGary S., “Crime and Punishment: An Economic Approach.” Journal of Political Economy76(2) (March/April 1968): 169–217.
2.
BrotmanBillie Ann, and FoxPauline. “The Impact of Economic Conditions on the Incidence of Arson: Comment.” Journal of Risk and Insurance. 55(4) (December 1988): 751–754.
3.
“Business Cycle Expansions and Contractions.” National Bureau of Economic Research. 17 Dec. 2005http://www.nber.org/cycles.html.
4.
CloningerDale O. “Risk, Arson and Abandonment.” Journal of Risk and Insurance. 48(3) (September 1981): 494–504.
5.
CloningerDale O. “Arson and Abandonment: A Restatement.” Journal of Risk and Insurance. 57(3) (September 1990): 540–545.
DylEdward A., and LongHugh W.. “Abandonment Value and Capital Budgeting: Comment.” Journal of Finance. 24(1) (March 1969): 88–95.
8.
EhrlichIsaac. “Participation in Illegitimate Activities: A Theoretical and Empirical Investigation.” Journal of Political Economy81(3) (May/June1973): 521–565.
9.
GreenSteven L., and SewardJ Allen.. The Economics of Residential Arson: Theory and Evidence from a Panel of Cities. American Risk and Insurance Association, Oct. 1998. 28 Jan. 2006 http://finance.baylor.edu/seminars/papers/Arson.pdf>.
10.
HershbargerRobert A., and MillerRonald K.. “The Impact of Economic Conditions on the Incidence of Arson.” Journal of Risk and Insurance45 (1978): 275–290.
JoyMaurice O. “Abandonment Values and Abandonment Decisions: A Clarification.” Journal of Finance. 30(3) (September 1976): 1225–28.
13.
RobichekA. and Van HorneJames C.. “Abandonment Value and Capital Budgeting.” Journal of Finance. 22(4) (December 1967): 577–89.
14.
ScottCharles. Deputy Fire Marshal, Nashville-Davidson County. Personal interview. 5 Dec. 2005.
15.
SpillmanThomas C., and ZakThomas A.. “Arson: An Economic Phenomenon?” The American Economist23 (1979): 37–43.
16.
The State of Tennessee. Department of Labor and Workforce Development. Labor Force, Employment & Unemployment. 2005. 17 Dec. 2005http://source.virtuallmi.com/>.
United States. Primary Mortgage Market Survey. Federal Home Loan Mortgage Association. 30-Year Fixed-Rate Mortgages Since 1971. Mar. 2006. 21 Mar. 2006 http://www.freddiemac.com/pmms/pmms30.htm>.
19.
United States. Economic and Housing Research.Federal Home Loan Mortgage Association. Conventional Mortgage Home Price Index Q3 2005 Release. 5 Feb. 2006. 28 Feb.2006http://www.freddiemac.com/finance/cmhpi/>.
