A Dynamic Model of Differential Human Capital and Criminal Activity

H. Naci Mocan, Stephen C. Billups, Jody Overland

NBER Working Paper No. 7584
Issued in March 2000
NBER Program(s):Children

This paper presents a new, dynamic economic model of criminal activity. Individuals are endowed with legal and criminal human capital. Potential incomes in legal and criminal sectors depend on the level of the relevant human capital, the rate of return, and random shocks. Both types of human capital can be enhanced by participating in the relevant sector. Legal human capital can also be enhanced through savings. Each type of human capital is subject to depreciation. Individuals maximize expected discounted lifetime utility, which depends on consumption. In this two-stage dynamic stochastic model, in each period the individual decides in which sector to participate (legal or illegal), and after the realization of income in that period, he decides on the optimal amount of consumption. A particular decision (e.g. participation in the criminal sector) has implications both for future decisions as well as the choices available to the individual in later periods. The model allows analyses of the effects of recessions, neighborhood effects, various imprisonment/rehabilitation scenarios, risk aversion, and time preferences on criminal behavior. It provides new insights, which are different from existing models, and it is able to explain the declining propensity of individuals to commit crimes over time.

download in pdf format
   (929 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w7584

Published: Mocan, H. Naci, Stephen C. Billups and Jody Overland. "A Dynamic Model Of Differential Human Capital And Criminal Activity," Economica, 2005, v72(288,Nov), 655-681. citation courtesy of

Users who downloaded this paper also downloaded* these:
Lochner w10478 Education, Work, and Crime: A Human Capital Approach
Becker Crime and Punishment: An Economic Approach
Mocan and Bali w11210 Asymmetric Crime Cycles
Imai and Krishna w8281 Employment, Dynamic Deterrence and Crime
Carroll, Overland, and Weil w6138 Comparison Utility in a Growth Model
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us