We model the decisions of young individuals to stay in school or drop out and engage in criminal activities. We build on the literature on human capital and crime engagement and use the framework of Banerjee (1993) that assumes that the information needed to engage in crime arrives in the form of a rumour and that indi-viduals update their beliefs about the profitability of crime relative to education. These assumptions allow us to study the effect of social interactions on crime. In our model, we investigate informational spillovers from the actions of talented students to less talented students. We show that policies that decrease the cost of education for talented students may increase the vulnerability of less talented students to crime. The effect is exacerbated when students do not fully understand the underlying learning dynamics.


  • Darío Maldonado
  • Darwin Cortes
  • Guido Friebel

Palabras clave:

  • Human Capital
  • social interactions
  • the economics of rumours
  • urban economics


  • Proyecto 2
  • Publicación