Dismantling a Market for Stolen Goods : Evidence from the Regulation of Junkyards in Brazil

This paper investigates the impact of firm monitoring on the illicit market for stolen goods, with a specific focus on the association of junkyards and auto theft. I exploit the effects of state-level regulations implemented in Brazil in 2014, which enhanced supervision of the market for vehicle spare parts. I show a substantial decrease in auto theft, and the most significant reduction occurs in neighborhoods with a prominent presence of junkyards. Overall, municipalities with at least one junkyard specialized in vehicle spare parts show a 4.35% decline in auto theft compared to the control group. I also provide evidence of a 7.09% decrease in vehicle insurance prices, which suggests an improvement in citizens' welfare in the context of lower crime rates. These findings offer crucial insights regarding the role of market regulation in deterring criminal activities related to the trade of stolen goods and emphasize its complementary to traditional public security policies