Crime, Education and Peer Pressure
ABSTRACT We present a dynamic two-period model of individual behaviour with heterogeneous agents in which individuals decide how to allocate their disposable time between education, crime and work in the legal sector. Education has a multiple role: it implies higher expected wages in the legal sector, increasing the opportunity cost of committing crime and it has a sort of “civilization” effect that makes more costly to engage in criminal activities. We model this effect by introducing a peer pressure function.
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Crime, Education and Peer Pressure
Università degli Studi di Milano-Bicocca
Università degli Studi di Bergamo
We present a dynamic two-period model of individual behaviour with het-
erogeneous agents in which individuals decide how to allocate their disposable
time between education, crime and work in the legal sector. Education has a
twofold effect: it implies higher expected wages in the legal sector, increasing the
opportunity cost of committing crime and it has a sort of “civilization” effect
that makes more costly to engage in criminal activities. We model this effect by
introducing a peer pressure function.
Key words: Crime; Education; Peer Pressure
JEL Classification: I2; J24; K42
∗This paper builds on one chapter of my PhD dissertation. I would like to thank Federico Cingano,
Piergiovanna Natale, Leone Leonida and two anonymous referees for their useful comments and ad-
vices. I am solely responsible for this paper’s contents. Financial support from the University of
Milan-Bicocca is gratefully acknowledged. Email address: firstname.lastname@example.org.
Over the last three decades, a growing amount of research effort has been devoted to
study the socioeconomic determinants of criminal behaviour, partly motivated by the
remarkable increase in criminal activities in many developed countries.
The empirical evidence collected so far suggests two main stylized facts: i) criminals
tend to be less educated and from poorer and more disadvantaged backgrounds than
non criminals and ii) peer effects and social interactions are very strong in criminal
decisions. In 2001 more than 75% of the overall convicted population in Italy had not
graduated from high school and, analogously, in the US two-thirds of the incarcerated
men had not attained this level of education (Freeman, 1996).1On the other hand,
several studies (Case and Katz, 1991; Glaeser et al, 1996; Ludwig et al, 2001) find
that living in low-income and high-poverty neighbourhoods increase the probability of
engaging in crime.2
The purpose of this paper is to provide a model encompassing both the effects
of education and peer pressure on criminal behaviour. Previous theoretical works,
following Becker (1968), describe a criminal like an amoral individual, whose decision
is made on the basis of a maximization problem in which individual compares costs and
benefits of legal and illegal activities taking in account the probability of being arrested
and punished and the expected returns from crime. Instead, we consider other factors
that can affect criminal choice as education, background and peer effects. We develop
a dynamic two-period model of criminal behaviour, in which individuals decide how to
1Despite this evidence, few papers have estimated the causal relationship between education and
crime. Recently, Lochner L. (2004) and Lochner L. - Moretti E. (2004) find a significant and
robust inverse relationship between crime and high school graduation.
2For instance, Case A.C. - Katz L.F. (1991), using data from the 1989 NBER survey of youths
living in low-income Boston neighbourhoods, find that a 10 percent increase in the neighbourhood
juvenile crime rate increases the individual probability of becoming a delinquent by 2.3 percent.
Ludwig J. et al (2001), using data from a randomized housing-mobility experiment conducted on
638 families from high-poverty Baltimore neighbourhoods, estimate that relocating families from high
to low poverty neighbourhoods reduces juvenile arrest and violent criminal behaviours by teens on
the order of 30 to 50 percent.
allocate their disposable time between education, crime and work in the legal sector.
Education in our model has a multiple role: i) by investing in education agents raise
their productivity/skills and improve their labour market perspectives thus incurring
a higher opportunity cost of crime and ii) education has a “civilization” effect that
makes more costly to engage in criminal activities. We model the “civilization” effect
of education by introducing a peer pressure function, following Kandel and Lazear
(1992). In particular, introducing a peer pressure function, we are able to analyze
how individuals are affected in taking their decisions by peer group components (i.e.
parents, relatives, schoolmates, neighbours).
Our main findings suggest that a correct mix of enforcement, education subsidies
and taxation policies reduces crime. In particular, increases in law enforcement and in
education (via education subsidies) are likely to considerably affect the level of crime
and to be important components of an effective crime-fighting strategy.
Our model encompasses many of the mechanisms discussed and developed by the
relevant literature in this field.
As previously mentioned, education affects the decision to engage in criminal ac-
tivities in several ways. First, higher levels of educational attainment are associated
with higher wage rate, increasing the opportunity cost of criminal behaviour. Second,
education may alter personal preferences so to affect decisions to engage in crime. In
particular, Fajnzylber et al (2002) suggest that, by incorporating a civic component,
education may increase the individual’s moral stance, and then affects the individu-
als’ perception of crime. Similarly, Usher (1997) stresses that education “perpetuates
the values of society, enculturates people to serve their communities, and promotes the
virtues of hard work and honesty” (p. 386). Third, independently of the level of educa-
tional attainment, school attendance alone, reduces the time available for participating
in criminal activities (Witte and Tauchen, 1994). Hence, education appears to be an
important variable in determining crime rate both for its direct economic implications
and for its non market effects.
Other important aspects of criminal behaviour relates to the social structure and
networks and in particular to the role of peer group in influencing individual behaviour.
Calvo-Armengol and Zenou (2003) stress the role of social structure and network in fa-
cilitating delinquent behaviour. Criminal activity may be contagious in high-crime and
disadvantaged areas both because the probability of apprehension and the punishment
associated to the criminal action may be lower than in other neighbourhoods (Sah,
1991), and since it is easier to get in touch with criminals and acquiring the know-how
for crime. Neighbour and peer pressure may also affect the actual or perceived returns
to education and legal work by influencing access to schools, that may turn out in a
lower opportunity cost of crime. Case and Katz (1991) find that there exists an im-
portant link between the behaviour of older family members and youth in relation to
criminal activity, drug and alcohol use and that youth behaviour is substantially af-
fected by neighbourhood peers. Disadvantaged youths, living in suburb or high-crime
areas, are more likely to imitate bad attitudes of their parents and neighbours (i.e.
crime participation, abuse of drug and alcohol, school drop out). Individuals are more
likely to think that illegal behaviours are legitimate if they observe their neighbours
not to respect law.
The remainder of the paper is structured as follows. In Section 2 we present in
detail the model and the equilibrium. Section 3 discusses the results and Section 4
We develop a dynamic two-period model of individual behaviour with heterogeneous
agents in which adolescents and adults3decide how to allocate their disposable time
between education, crime and work in the legal sector. Level of ability and endowments
achieved in primary school are taken as given. We analyze the impact of education
subsidies, taxes, law enforcement (i.e. probability of apprehension), victimization rate,
peer pressure and level of wages on criminal behaviour. Below we describe the various
components of our framework.
3As we discuss later in the subsection 2.7, individuals in the second period do not invest in education
due that they live the last period of their life.
The economy is populated by a large number of individuals who are ex-ante hetero-
geneous with respect to their learning abilities (εi). Each individual maximizes the
present value of her lifetime utility with respect to the time allocated to education in
the first period (si,1) and the time allocated to criminal activities in the first (di,1) and
in the second period (di,2) :
1 + ρUi,2
The utility function is defined as
Ui,t= ci,t− γ(si,t−1)(di,t−
where ci,t: consumption of individual i in period t,
N − 1
: average time
spent committing crime by others belonging to the same peer group, γ(si,t−1)(di,t−
peer pressure function, ρ : intertemporal discount factor. The share of type-i individual
in the population is given by the fraction χi,
χi= 1, where I is the number of ability
The individual’s utility depends on her consumption and on her disutility, com-
parable with consumption, coming from her decision about crime. The peer pressure
function implies that individuals get disutility from committing more crimes than their
peer group components. The magnitude of this effect is caught by γ(si,t−1) and depends
Denoting with wtthe wage rate in period t, with li,tthe time spent working in the legal
sector and with τ the tax rate, disposable income from legitimate activities of a type-i
individual is given by
yi,t= (1 − τ)wthi,tli,t
= (1 − τ)wthi,t[1 − si,t− di,t]