Economics of the Broken Window Theory

In this paper, we argue that there is strategic complementarity in criminal behavior. Strategic complementarity arises because the apprehension probability that affects the crime rate depends on the crime rate itself. The natural consequence is the possible multiplicity of the equilibrium crime rate. The actual crime rate is realized by the self-fulfilling nature of the crime rate. Our analysis provides an economic rationalization of the broken window theory as the result of strategic complementarity and self-fulfilling crime rates. Regardless of how effective polices prescribed by the broken window theory are (e.g. removing graffiti, reducing trash in the street, and repairing broken windows), our model demonstrates the theory's important contribution of introducing to the economics of crime the idea of belief-based deterrence. We also show that the equilibrium crime rate is stable whenever the broken window policy targets the lowest among multiple equilibrium crime rates.