Gunned Down By Private Equity?

Abstract

It has been widely documented that private equity (PE) is a shock to the profit maximization motive. I study the alignment between profit maximization incentives, regulation and social outcomes in the gun market. Using 1980-2019 crime gun data from 2,396 U.S. federal firearms licensed dealers (FFLs), I find that PE-backed FFLs sell more guns traced to homicides, assaults, and robberies with a lower time-to-crime rate. PE-backed FFLs are less likely to be inspected by the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) and are more likely to see an increase in cited violations related to unreported firearms, and missing identification checks. My results indicate that undervalued gun markets and regulatory capture create incentives for/through PE which negatively effect social welfare.