An urban overhead? Crime, agglomeration, and amenity

We study the effects of crime and agglomeration on the value of urban amenities using data for 134 locations in New Zealand and report three key findings. First, the negative effects of crime operate mostly via rents, with elasticities that range from $-$0.15 to $-$0.44. Accounting for endogeneity leads to larger elasticities in most specifications, possibly due to sorting effects. Second, crime has negative effects on the value of urban amenities, with elasticities that range from approximately $-$0.03 to $-$0.06 for firms and $-$0.02 to $-$0.09 for workers. Using reduced-form models, we show that these effects imply an elasticity of population with respect to crime of $-$0.04 to $-$0.10. Third, controlling for crime causes estimates of agglomeration economies to increase by approximately 0.01–0.02 points, on average. Our findings confirm that crime is an important urban congestion cost that erodes productivity and well-being.