Nov 21, 2013

Lost in the Mail: A Field Experiment on Crime (Peru)

From a paper by Marco Castillo, Ragan Petrie, Maximo Torero, & Angelino Viceisza  
Stealing, shirking, and opportunistic behavior in general can create barriers to the development of markets. The costs associated with such behavior are shared by both firms and individuals and can be large enough to even prevent the initiation of trade. Measurement of these costs is difficult because information is not available for transactions that fail to occur. We use a field experiment to identify opportunistic crime in a task that is important and relevant for trade: the delivery of mail. We subtly manipulate the content and information available in mail sent to households across neighborhoods that vary by income, and detected high levels of shirking and stealing. Eighteen percent of the mail never arrived at its destination, and significantly more was lost if there was even a slight hint of something additional inside the envelope. Our results demonstrate the importance of transaction costs created by crime and that not all populations are equally affected. Middle-income neighborhoods suffer the most.
From the conclusions in the draft (p. 24-25):
Using a simple and novel field experiment that opens the door for opportunistic behavior, we examine strategy and crime in the mail sector in Lima, Peru. We hypothesize that the very nature of mail delivery gives an opportunity to those who handle the mail to “lose” mail if it is beneficial to do so. Our design allows us to differentiate poor service from targeted crime and to investigate what information is pertinent to committing crimes and who suffers the most from it. 
We have several key findings. First, loss rates are very high. Over 18% of all mail sent never arrived at its destination. These rates are huge and would imply large barriers for the development of trade. Second, these loss rates are partially explained by poor service but not completely. Envelopes containing money were 50% more likely to be lost than those without money. So, mail loss is not random and hints at strategic behavior. Third, when the sender’s last name matched the recipient’s last name, the mail was almost twice as likely to be lost if it contained money. Clearly, those who handle the mail are looking for clues that might suggest that an envelope holds something of value. Fourth, middle-income neighborhoods suffer the highest loss rates and high-income neighborhoods suffer the lowest. This result (and the previous) lends support for the crime occurring in Peru rather than the U.S. since it would require the U.S. Postal Service to know which neighborhoods were rich or poor.

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