Big guy, little guy: Who suffers more from crime?

At first you might guess that it’s the big firms that make an easy target. But we need to do more than guess—the policy implications are quite different if the answer is “big” or “small.” If large firms are more efficient and do more R&D and export to other countries, then crime can be more harmful to the economy when directed against such firms. However, compared with large firms, wages and profits may be lower in the smaller firms. Crime directed against small firms can therefore be regressive (causing more harm to the relatively worse-off).

It turns out that getting to the bottom of this question requires drawing a careful distinction between two concepts: the incidence and burden of crime.

Typically, studies of crime are based on the incidence of crime as measured by the percentage of agents (households, firms, etc.) in a country/city that suffer one or more incidents of crime. In a previous post, I argued that the incidence of crime can be very different from the burden of crime as measured by losses due to crime. Specifically, for the LAC region and compared with large firms, small firms show a smaller probability of being a victim of crime but losses from crime as a percentage of firms’ annual sales were much bigger from small vis-à-vis large firms. This holds even when we average out the losses across all (victims and non-victims) small and large firms.

Using data from the Business Environment and Enterprise Performance dataset (BEEPS, 2009), a similar pattern is found for twenty nine countries in Eastern Europe and Central Asia. Averaged across all twenty nine countries, the incidence of crime equals 18.3% for small firms and 27% for large firms (medium firms lie in between with a rate of 22.4%). However, the burden of crime (averaged over victims and non-victims of crime) is much higher for small firms than for large firms (0.52% for small, 0.28% for large; medium firms show losses of 0.41%). The pattern is found to hold for most individual countries as well, although there are some exceptions (Figures 1 and 2).

Apart from the mismatch between the incidence and burden of crime, these results also caution against thinking of crime as a problem for relatively large firms alone. The burden of crime is greater on the smaller firms.