Media Briefings

MORE PAWNSHOPS, MORE THEFT: US evidence

  • Published Date: March 2015

The wider availability of pawnshops leads to an increase in burglaries, according to research by Rocco d’Este to be presented at the Royal Economic Society’s 2015 annual conference. Pawnshops increase crime by providing an alternative market where stolen personal items and valuables like gold jewellery can be quickly and cheaply converted into cash.

The study first analyses data on crimes and the number of pawnshops for 2,200 US counties in all 50 states and finds that one more pawnshop in a county is associated with six more property thefts in the county. What’s more, one more pawnshop in a state is associated with 36 more property thefts in a county in that state, indicating that there is extensive movement of stolen goods across county boundaries.

These findings suggest that pawnshops increase the expected benefits from theft by providing a deeper market for stolen goods. But the number of pawnshops shows no relation with violent crime involving physical harm or car thefts, most likely because pawnshops do not accept car parts.

The research goes on to show that when gold prices increase, there is an increase in the theft of gold jewellery arising from the existence of pawnshops in a county. This is because gold is a big part of the pawn business and they have access to tools that can melt gold and lose any trace of ownership.

According to the FBI, the United States experienced one theft every 40 seconds in 2010, equalling $16 billion in financial losses, 85% of which were for personal items.

Rocco d’Este comments:

‘My findings suggest the need for a closer monitoring of pawnshops – and similar businesses trading precious metals – by local authorities.

‘Other potential markets such as junkyards, flea markets, eBay, Craigslist and the dark web could also have an impact on the proliferation of illegal activity.’

More…

This research investigates the effects of stolen goods markets on crime through the channel of pawnshops, widespread legal markets often associated with the illicit trade of stolen property. The findings are consistent with the hypothesis that pawnshops can generate crime by providing a deeper market for stolen goods.

In 2010, the United States experienced one theft every 40 seconds, with a total of 9.5 million crimes and an estimated economic loss for victims of almost $16 billion (FBI, 2010). Personal items were stolen in almost 85% of cases, strongly suggesting that burglars need a market in which to convert these goods into cash (Walters et al, 2013). In particular, this raises the hypothesis that the local availability of stolen goods markets may affect criminal behaviour by reducing theft-related transaction costs and by raising the expected benefits deriving from illegal activity (Sutton, 2010).

The study investigates this hypothesis focusing on pawnshops. The analysis of a novel panel crime-related dataset, collecting information on eight reported crimes and on the number of pawnshops for 2,200 US counties in 50 states reveals that a marginal increase of pawnshops in a county is associated with six more property thefts in the same county.

The magnitude of the results is larger when considering the presence of geographical spillovers: one pawnshop more in a state is associated with 36 more property thefts in a county in the same state. Results are corroborated by the fact that the correlation between pawnshops and crime is only isolated to the case of property thefts, with no effect detected on violent crimes. Moreover, motor-vehicle thefts are unaffected, plausibly because pawnshops do not accept these items.

The second part of the empirical analysis shows that the effects of rising gold prices on burglaries are amplified by the predetermined prevalence of these businesses within a county. Gold is the major source of pawnbrokers’ business, representing a high percentage of the value of all pledges (Bos et al, 2012).

Pawnshops’ demand for gold materialises through trade in jewellery, which is frequently melted down by pawnbrokers through a ‘refinement’ process. During this process, professional outfits remove impurities from metal until they get a metal that is closer to being pure gold and, therefore, cannot be traced when re-sold. In this way, stolen jewellery can disappear forever via the counters of pawnshops.

The findings suggest that pawnshops increase the expected benefits from theft by providing a deeper market for stolen goods. No effect of pawnshops is detected through the rise in copper prices. This is consistent with the fact that pawnshops do not commonly trade copper, even if criminals heavily target objects made with this metal. The resale market for copper is indeed more heavily concentrated around dedicated scrap metal dealers (Sidebottom, 2011; or Cardoso et al, 2013).

From a policy perspective, these findings suggest the need for a closer monitoring of these shops – and of similar type of businesses constantly trading precious metals – by local authorities.

More broadly, this study highlights the scope to investigate, separate and quantify the effects that other potential markets such as junkyards, flea markets, eBay, Craigslist and the dark web could have on the proliferation of illegal activity. In fact, these and other markets may affect criminals’ incentives by reducing theft-related transaction costs, by increasing the expected benefits from thefts, by amplifying the effects of world prices fluctuations of metals and technological goods and – in some cases – by selling weapons, illicit drugs and other illegal products.

ENDS


Rocco d’Este – Warwick PhD student Economics – r.d-este@warwick.ac.uk - 07907866062