Crime and ‘The Mario Effect’

By Michael Kleen

May 1, 2013
Rock River Times

Last summer, an expanding video game store franchise opened a new location on Perryville Road in Rockford. To help advertise their new business, the store hired a young man named Angel Galvan to dress in a Super Mario costume and dance in the lawn near the road.

One day, in the first week of October, two unidentified men drove up, got out of their vehicle, and attacked Galvan. One of the men punched him repeatedly while the other recorded the assault on his cell phone. The pair then drove off as quickly as they arrived. Police are still looking for suspects.

“We’ve never run into anything like this before,” TNT Video Game Store owner Steve Allen told Channel 23 News. “It’s scary. We’re looking forward to doing business in Rockford, but definitely are apprehensive.”

Undeterred, and after a few days off, Galvan put his costume back on and returned to work. He was understandably shaken by the attack, telling the local news, “I’m a little nervous … and I just hope for the best. That’s all I can say.”

Angel Galvan’s assault is just a single incident out of the hundreds that put the City of Rockford at No. 1 in violent crime per capita in Illinois.

Sadly, there are many in Rockford who do not understand (or do not care) how this high crime rate affects them by depressing the economy and lowering their quality of life. As long as the crime does not occur against them, they can breathe easily because they dodged a bullet (sometimes literally).

A high crime rate, however, has an acutely negative effect on the local economy. While TNT Video Games remained open after the attack on its mascot, the crime has sent a very public message to other retail outlets thinking about coming to the Rockford area. There is a very real possibility that some business owners, who were otherwise attracted to the city, have decided to avoid it out of fear for their employees’ safety. We can call this the “Mario Effect.”

Economists call it “deadweight loss.” Deadweight losses occur when buyers and sellers would have engaged in mutually-beneficial economic activity, but do not. For example, excess taxes can raise the price of a product beyond what some consumers are willing or able to pay. The transactions that would have occurred without the tax, but do not, are considered deadweight loss. This loss, though essentially “unseen,” causes economic inefficiency and makes us all less well off.

That is how crime at one business affects the business next door, even though it was not victimized. As the crime rate rises, more and more customers will avoid shopping in the area out of fear for their safety. Once an area develops a reputation for being unsafe, it is very difficult to persuade those customers to return, even if the danger is more a matter of perception than reality.

The Mario Effect can be a difficult concept because it involves the unseen, but it is actually quite simple. Suppose there are two stores next to one another in a strip mall, and one of them has been victimized by repeated break-ins. The owners of both stores, fearing for their security, both pay $5,000 for a professionally installed security system. The break-ins stop, but at a high cost.

The deadweight loss in this scenario was all the things the store owners could have done with that money if the break-ins had never occurred. Perhaps they were planning on hiring another employee, or investing in advertising, technology upgrades or a new product line. Not only do those things fall by the wayside, but the store owners may attempt to pass their security costs onto their customers by raising prices.

Although someone benefited from the crime in this scenario, namely a security company, it would have been more economically beneficial for the whole community if the store owners used their resources elsewhere. In areas where crime is rampant, the economy is slowly strangled as resources that would have gone to productive activity are instead spent on security, higher insurance premiums, repairing damages and replacing stolen inventory.

In short, we should come to think of a high crime rate as a hidden tax that puts constant downward pressure on the local economy. Reversing this effect could take years, perhaps even a decade or more, but the short-term investment in crime reduction will yield much greater benefits in the long term. Otherwise, an economic recovery will continue to be elusive.

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