Arson and the business cycle

Abstract

As a form of financial abandonment, arson may be profitable if property values sink below insured replacement values. Testing this hypothesis using general labor market conditions to reflect property values in Nashville, Tennessee, Spillman and Zak (1979, 37–43) found no support for the proposition. We measure property values directly rather than assuming they are approximated by labor market conditions, and find strong evidence that rising (falling) property values and decreasing (increasing) mortgage rates are associated with lower (higher) arson rates. Like Spillman and Zak, we observe no relationship between labor market conditions and arson.