The Cost of Avoiding Crime: The case of Bogotá

Authors: 

Alejandro Gaviria

Carlos Medina

Leonardo Morales

Jairo Núñez

Abstract:

Quantifying the costs of crime and violence is a useful exercise because 

it contributes to the quality of the public discussion about a fundamental 

problem, and because it helps policymakers both prioritize and design cost- 

effective policies to diminish the adverse effects of crime. Estimates of the 

cost of violence are usually based on health care expenditures and losses 

to national economies coming from (among other things) days away from 

work, law enforcement expenditures, and unrealized investments.

Nonetheless, these estimations do not usually consider the cost posed by 

crime and violence to households within cities, in terms of both the different 

risks they face and the coping mechanisms used by them. Specifi cally, within 

a city, the variation of crime and violence rates across neighborhoods provides 

a market that is serviced by security agencies created for that purpose. 

Households often end up paying for security in the form of higher property 

and rental values.

There are two relevant issues concerning the market for neighborhood 

afety (the amenity under consideration in this chapter) that one should 

consider. First, one must quantify the cost of this amenity to households. 

Second, one must identify the impossibility of most households to meet this 

cost. Even though many  households are willing to pay to avoid crime, just 

a few are actually able to, thus making neighborhood safety (a supposedly 

pure public good) subject to private markets, and therefore to exclusion.

In this chapter, we study the aforementioned issues for the city of Bogotá, 

Colombia. We fi nd that households living in the highest socioeconomic stratum 

(stratum 6) are paying up to 7.2 percent of their house values in order 

to prevent average homicide rates from increasing in one standard deviation. 

For their part, households in stratum 5 are paying up to 2.4 percent of 

their house values to prevent homicide rates from increasing. These results 

indicate the willingness to pay for security by households in Bogotá, and, 

additionally, show the emergence of urban private markets for security. 

These markets imply different levels of access to public goods among the 

population, and actually, the exclusion of the poorest.

We now proceed to describe the levels of crime in Colombia and some previous 

work on the topic. Then we describe our data and present the empirical 

methodology and identifi cation strategy. Finally, we present the results and 

offer some general conclusions.

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