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Capital Crimes: Kidnappings and Corporate Investment in Colombia

Capital Crimes: Kidnappings and Corporate Investment in Colombia

Chapter:
(p.63) 2 Capital Crimes: Kidnappings and Corporate Investment in Colombia
Source:
The Economics of Crime
Author(s):
Rony PshisvaGustavo A. Suarez
Publisher:
University of Chicago Press
DOI:10.7208/chicago/9780226153766.003.0003

This chapter proposes an approach focused on a particularly salient crime of kidnappings. After having exploiting variation in kidnappings that target firm managers in different regions of Colombia, the authors find that firms invest less when kidnappings directly target them, while there is no effect when there are other forms of violent crime that do not explicitly target firms, such as homicides, guerrilla attacks, and general kidnappings. It is found that the estimated effect on one firm is larger for kidnappings suffered by other firms in the same industry. Recent empirical studies show that institutions that protect property rights foster investment and long-run economic growth. Thus, the investment is based on hedonic price models, where disamenities like crime are built into real estate market prices. The firms with substantial foreign ownership are particularly sensitive to kidnappings of foreign managers and owners.

Keywords:   kidnappings, firm managers, Colombia, crime, property rights, investment, industry, Colombia

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