Unobserved heterogeneity bias when estimating the economic model of crime

Using unique and unpublished panel data from selected US cities, the paper investigates the consequences of ignoring unobserved heterogeneity in the u nit of observation when estimating the economic model of crime. Results con firm that neglecting to control for unobserved heterogeneity overstates the ability of sanctions to deter criminal activity. Further, this upward bias is found to vary significantly across crime types. Interestingly, heteroge neity is insignificant in the tightly reported crimes of murder and auto-th eft while being significant in assault, robbery, burglary and larceny where individuals and police have greater discretion in reporting.