LAUSR

Abstract Most OECD countries have downsized treatment capacity at psychiatric hospitals substantially. We investigate consequences of these reductions by studying how the decision whether to admit individuals in mental distress to a psychiatric hospital affects their subsequent crime, treatment trajectories, and labor market outcomes. To circumvent nonrandom selection into admission, we use a proxy of occupancy rates prior to a patient's first contact with a psychiatric hospital as an instrument. We find that admissions reduce criminal behavior, likely due to incapacitation, and predominantly for males and those with a criminal record. Furthermore, admission lowers patients' subsequent labor market attachment, likely because a psychiatric hospital admission is an eligibility criterion for welfare benefits.