A Model of the Indirect Effect of Crime on the Demand for Money

Abstract

This paper studies the indirect relation between the demand for money and crime, which emerges from the defensive actions of companies against criminal clients. A theoretical search model is built in which companies trade with criminal clients who consume without paying, allowing the former to hire private security. The model produces two balances in pure strategies. First, if the cost of security is high, companies do not hire private security and the criminal buyers do not carry money. Second, if the cost of security is low, the high demand for money is reestablished. This construct is formalized in a purely theoretical model that generates proposals that can be proven empirically, establishing a future line of research. It should be noted that the indirect effect described has not been discussed in relevant literature. As a result, the existence of an indirect channel between crime and money that emerges from a market externality is demonstrated: the demand of companies for private security endogenously determines the demand for money of the economy.