Retail Crime Price Pass-Through

Retail crime raises prices at the stores it hits and at their unhurt competitors. Hase and Kasinger establish the effect with the Washington state retail cannabis industry as their laboratory and read it as a cost shock behaving like a hidden tax on the market. The working paper (October 2024) reports a 1.5–1.8% price increase and $33.9M in additional annual social costs; the published version (AEJ: Economic Policy 18(4), November 2026) reports 1.7–1.8% and $30.7M. The figures below are the working paper’s unless marked otherwise. ^{1 2}

Setting and data

Cannabis retail in Washington state sells brick-and-mortar only (no online channel) and competes in well-defined local markets, and the state’s traceability regime yields unusually rich data: scanner records covering the universe of upstream and downstream transactions for all 508 active retailers, matched to store-level reported robberies and burglaries — 62 armed robberies and 14 burglaries between March 2018 and December 2021, each with a police-report link. ³

Design

Identification uses the quasi-random timing of crime incidents. Treated units: stores directly hit by a robbery or burglary (n = 57) and rival stores within five miles of a victim (n = 264); controls: stores 30–60 miles from any victimized store (n = 329). Treatment is assigned at the incident month, and the main specification is the stacked differences-in-differences estimator of Cengiz et al. (2019), chosen because its clean-control rules extend naturally to geographic criteria. ⁴

Results: prices up, quantities flat

Crime incidents raise store-level prices by 1.5–1.8% at both victimized and rival stores, with no short-run effect on quantities sold. The flat quantity response speaks against fear-driven demand substitution, and the overall pattern fits an own-cost shock: precautionary spending — additional security guards being the most common single expense in this setting — raises marginal costs, and stores price to their own costs rather than to rivals’. Effects are larger for independent stores and in less concentrated markets. ⁵

Crime as a hidden tax

Modeling crime as a marginal-cost shock, the authors price it with the symmetric-oligopoly pass-through framework of Weyl and Fabinger (2013), estimating own and competitor pass-through rates from stores’ wholesale prices. Each crime incident imposes a hidden unit tax of about 1% on affected stores. The welfare accounting: consumer surplus falls $22.8M per year and producer surplus $11M per year — $33.9M in total, with incidence split roughly 67% to consumers and 33% to retailers — and the annual excess burden for the Washington cannabis industry is $20.2M. ⁶ Scaling the excess burden to all US retailers by sales share implies on the order of $80B per year in additional welfare costs; the authors call the extrapolation naive and expect sector heterogeneity in market structure and crime rates to cut it. ⁷

The policy claim: social-cost accounts of retail crime that stop at direct losses and prevention spending miss a distributional channel — people who were never robbed pay through prices. With state and local governments allocating roughly $126B to police protection in 2020, the authors argue pass-through effects belong in the comparison of prevention costs and benefits. ⁸

Limits

The setting is a heavily regulated, heavily taxed industry where security spending is already prominent; pass-through magnitudes in other sectors are an open question, and the $80B scaling is explicitly naive. The welfare analysis abstracts from cannabis-consumption externalities — the identified price hikes may be partly corrective for a sales tax that already aims to internalize consumption harms — and from distributional effects: cannabis consumers skew low-income and young, so the hidden tax is likely regressive. Crime enters as reported incidents. ⁹

Related

• economics-of-cyber-risk — the social-cost accounting of crime (direct losses, indirect losses, defense costs); the hidden tax is a concrete mechanism by which crime costs reach people who were never robbed
• moral-economy-price-tag — price regimes: a cost shock rolling silently into shelf prices is the fixed-price regime’s incidence machinery at work

Sources

• Carl Hase and Johannes Kasinger 2024 — The Pass-through of Retail Crime
• Carl Hase and Johannes Kasinger — The Pass-through of Retail Crime (AEA 2025 session slides)
• Carl Hase and Johannes Kasinger 2026 — The Pass-Through of Retail Crime (AEJ: Economic Policy article page)

Footnotes

1. Carl Hase and Johannes Kasinger 2024 — The Pass-through of Retail Crime ↩

2. Carl Hase and Johannes Kasinger 2026 — The Pass-Through of Retail Crime (AEJ: Economic Policy article page) ↩

3. Carl Hase and Johannes Kasinger — The Pass-through of Retail Crime (AEA 2025 session slides) ↩

4. Carl Hase and Johannes Kasinger — The Pass-through of Retail Crime (AEA 2025 session slides) ↩

5. Carl Hase and Johannes Kasinger 2024 — The Pass-through of Retail Crime ↩

6. Carl Hase and Johannes Kasinger — The Pass-through of Retail Crime (AEA 2025 session slides) ↩

7. Carl Hase and Johannes Kasinger 2024 — The Pass-through of Retail Crime ↩

8. Carl Hase and Johannes Kasinger 2024 — The Pass-through of Retail Crime ↩

9. Carl Hase and Johannes Kasinger 2024 — The Pass-through of Retail Crime ↩