A BURNING QUESTION: DOES ARSON INCREASE WHEN LOCAL HOUSE PRICES DECLINE?

Abstract

We construct panel data on house prices and the determined cause of 4.8 million individual fires in the United States between 1986 and 2010 to test whether decreases in local housing market prices coincided with increases in arson. Since some insured homeowners may attempt to disguise the actual cause of fire as accidental, we also examine how decreases in local house prices are associated with changes in the total number of fires and the probability of determined causes of accidental fires. For the sample period, our results suggest that declines in local house prices coincided with increases in arson, the total number of fires, and the probability that fires were determined to occur due to arson and misuse. We provide further support for the existence of such an effect with empirical evidence that the relation between declines in house prices and arson is stronger in states that allow mortgage lender recourse.

Opportunity and rationality as an explanation for suspicious vehicle fires: demonstrating the relevance of time, place, and economic factors

“…For example, Goebel and Harrison (2012) demonstrate that residential arson significantly increases in areas with high rates of housing foreclosure and unemployment. Eriksen and Carson (2017) extend these results by documenting that as that housing price declines, the prevalence of arson and the likelihood of arson-related insurance fraud increase. Further, the authors find a stronger, negative correlation between home price and arson in states that allow lenders to litigate homeowner foreclosures (Eriksen and Carson 2017).…”

“…Eriksen and Carson (2017) extend these results by documenting that as that housing price declines, the prevalence of arson and the likelihood of arson-related insurance fraud increase. Further, the authors find a stronger, negative correlation between home price and arson in states that allow lenders to litigate homeowner foreclosures (Eriksen and Carson 2017). A drop in housing prices, combined with an increased potential for legal repercussions associated with loan foreclosure may shift the risk/reward ratio to make arson a rational choice during times of economic instability.…”

“…Given that the purpose of this study was to examine the relationship between opportunity, rationality, and local economic indicators relating to individual financial strain and varying capacity to repay debt, BC unemployment and Canadian interest rates were selected as economic indicators appropriate for analysis. As emphasized by Eriksen and Carson (2017), increases in economic strain (as may be associated with increasing unemployment and interest rates) could provide sufficient incentive to commit arson as a means of escaping debt; this echoes the risk/reward balance offered within the rational choice perspective.…”

“…Financial stress can lead individuals to go to extreme lengths to escape these strains, as demonstrated by increases in both crime and suicide during times of economic downturn (Milner et al 2015; United Nations Office on Drugs and Crime 2011). Focusing specifically on fire, research has found that both arson and insurance fraud are influenced by economic factors (Dionne and Wang 2013;Eriksen and Carson 2017). For example, Goebel and Harrison (2012) demonstrate that residential arson significantly increases in areas with high rates of housing foreclosure and unemployment.…”