Formal and informal deterrents of crime in Japan: Roles of police and social capital revisited

Using Japanese prefecture-level panel data, this paper examines how the crime rate is affected by formal and informal deterrents as reflected by police and social capital, respectively. Both, however, suffer from the endogeneity problem and therefore the estimation results are biased when regression analysis is conducted. Hence, the fixed effects 2SLS method is employed to control for the endogeneity bias as well as for unobservable fixed effects. As well, the relationship between inequality and crime is examined. The main findings are: (1) police and social capital reduce the crime rate and their effects increase when the endogeneity bias is controlled for through fixed effects 2SLS estimation. (2) The effects of social capital, which is smaller than that of police, is however is reinforced by police through the complementary relationship existing between them.