Urban crime and labor mobility

"We present a model of crime where two municipalities exist within a metro area (MSA). Consistent with the literature, local law enforcement has a crime reduction effect and a crime diversion effect. The former confers a spillover benefit to the other municipality, while the latter a spillover cost. If the net spillovers are positive (negative), then the respective Nash enforcement levels are too low (high) from the perspective of the MSA. When we allow for Tiebout type mobility, labor will move to the location offering lower disutility crime (including the tax burden). To attract labor both jurisdictions would like to raise the relative crime that exists in the competing region. Interestingly, this could raise or reduce enforcement compared to the immobility case. If it was too high (low) under immobility, it will be raised (reduced) further under mobility. In the symmetric case, neither can gain any labor, but the competition for it pushes the jurisdictions further away from the efficient (cooperative) outcome. Thus, mobility must be welfare reducing. We also consider asymmetry in the context of differences in efficiency of enforcement. The low cost municipality has the lower crime damage (inclusive of the tax burden) and attracts labor. Mobility is necessarily welfare reducing for the high cost municipality and for the MSA, but it has an ambiguous effect on the low cost municipality"--Federal Reserve Bank of St. Louis web site.