Using Placebo Laws to Test "More Guns, Less Crime".

We reexamine Mustard and Lott's controversial study on the effect of ‘shall-issue’ gun laws on crime using an empirical standard error function randomly generated from ‘placebo’ laws. We find that the effect of shall-issue laws on crime is much less well-estimated than the Mustard and Lott (1997) and Lott (2000) results suggest. We also find, however, that the cross equation restrictions implied by the Lott-Mustard theory are supported. A boomlet has occurred in recent years in the use of quasi-natural experiments to answer important questions of public policy. The intuitive power of this approach, however, has sometimes diverted attention from the statistical assumptions that must be made, particularly regarding standard errors. Failing to take into account serial correlation and grouped data can dramatically reduce standard errors suggesting greater certainty in effects than is actually the case. We find that the placebo law technique (Bertrand, Duo and Mullainathan 2002) is a useful addition to the econometrician's toolkit. [ABSTRACT FROM AUTHOR]