Crime: Outline  Two ways of getting all and only efficient offenses  Expected punishment equals damage done  Special case efficient offenses  Pigouvian punishment allowing for the cost of imposing it  Enforcement cost  Punishment cost  How they effect the optimal p/P combination  What this leaves out:  Incapacitation,  Rehabilitation,  Marginal deterrence  Does deterrence work?  Should the rich pay higher fines?  Stigma as punishment  Why not hang them all: The advantages of inefficient punishment

Criminal Law vs Civil Law All crimes are crimes against the state –If someone mugs me, I’m just a witness –The state of California is the victim, legally speaking –And the state decides whether to prosecute, controls prosecution, settles, collects any fine Torts are offenses against the real victim –Who decides whether to sue –Prosecutes, settles if he wants –And collects damages The discussion of why is another chapter

Efficient and inefficient crimes Most crimes benefit criminal less than they harm the victim –If your car was worth more to me than to you –I wouldn’t have to steal it--I could buy it And the opportunity for me to steal from you –Gives me an incentive to spend time and effort stealing –You to spend time and effort defending –All of which is a net loss So most crimes are inefficient, should be deterred But consider –The speeder with his wife giving birth in the back seat –The lost hunter breaking into an empty cabin –These are efficient crimes: Benefit>damage done

Optimal Punishment How do we deter all and only inefficient crimes? Special case efficient crimes? –Traffic cop looks in back seat, waves you ahead –Hunter gets off under the doctrine of necessity –But what if the court can ’ t tell if the crime is efficient? Pigou –We punish with some probability p of having to pay a fine F –Set pF = damage done –Crime is then only committed if value to criminal>damage –Does that explain why we don ’ t deter all murders? We have ignored the cost of catching and punishing criminals –Deterring an offense isn ’ t worth doing –If it costs more than the net damage the offense does How do the costs depend on probability and punishment? And how do we include them in our calculation?

Taking account of costs To get probability p of imposing punishment P –Enforcement cost--police, courts, etc. –Punishment cost--cost to criminal minus gain to us About zero for a fine (not counting trial, administrative costs, … ) Cost to criminal of being imprisoned plus cost to us of running the prison Cost of execution is one life. Criminal loses it, we don ’ t get it Step 1: Find the efficient punishment/probability combination. –Out of all pairs p,P that are equivalent to the criminal –And so give the same level of deterrence –Find the one with the lowest enforcement+punishment cost –Think of that as the cost of imposing expected punishment – = pF for a risk neutral criminal paying a fine –More complicated in the general case –So we now know the cost of imposing any level of deterrence –In the least costly way. Step 2: Find the efficient level of expected punishment

Find the optimal expected punishment Buy the level of deterrence at which marginal cost of deterrence equals the benefit of deterring the marginal offense. –More than that would deter some crimes not worth the cost of deterring –Less would fail to deter some crimes that are worth the cost of deterring Benefit of marginal offense to offender equals –Because offenses worth more than that he commits –Those worth less he doesn’t –So the one that he would commit if punishment was a little less has benefit=expected punishment So benefit of deterring is (damage done) - (benefit to criminal) = D - Set that equal to marginal cost of deterrence: D- =MC So =D-MC Optimal = damage done by one offense - cost of deterring one more offense. Note that MC might be negative –Raising increases the cost per offense –But reduces the number of offenses –If he is deterred, you don’t have to catch him and punish him

Implication For crimes that are hard to deter –Increasing expected punishment a lot Only decreases number of offenses a little Which increases the enforcement cost/offense So cost increases, so MC of deterrence >0 –So the expected punishment should be less than damage done We let some inefficient crimes happen Because deterring them costs more than it is worth Murder, for instance For crimes that are easy to deter –Increasing a little decreases offenses a lot –So cost decreases, so MC of deterrence is negative –So should be less than damage done –Deter all inefficient crimes and some mildly efficient ones –To save the cost of apprehending and punishing them

Omitted Complications Incapacitation –One effect of punishment is to prevent future offenses By jailing the offender Or killing him –One can count that as a negative punishment cost Rehabilitation? –Another affect might be to change the criminal –For better or for worse Or the reverse Marginal deterrence –One crime may be a substitute for another, so … If you raise the punishment for mugging, that might Increase the number of burglaries Life for armed robbery and murder means … “ As well hang for a sheep as a lamb ” –You should take this into account in designing an optimal system of punishments

Why Count Benefits to Criminals? We count cost of crime net of benefit to criminal –To many people that seems odd, since –The criminal isn’t entitled to the money But we include “what rights do people have” –Inside our analysis of the legal system –So “criminals aren’t entitled to steal” –Is supposed to be a conclusion, not an assumption It seems natural to count the benefit to me of “driving dangerously” –Such as getting home sooner by driving faster –Or not having my brakes checked every year –Or not buying a new and safer car –In deciding how the law should treat auto accidents Why should crimes not be analyzed the same way? But …

Efficient murder Suppose we construct an example where murder is efficient –Wealthy sportsman, ten adventurers –$100,000 to each for permission to –Choose one at random and try to kill him Any reason this should be illegal?

Stigma as Punishment After conviction for embezzling, hard to get a job as a corporate treasurer –Suppose you apply, offer to take a cut in pay? –The fact that you can’t make an offer that will be accepted –Is evidence that your gain from the job is less than their loss Which means that the stigma helps them more than it hurts you Which makes stigma the one punishment with negative punishment cost –If it consists of information that makes other people change their decisions wrt you –In ways that make them better off, you worse off –Because otherwise you could pay them to change the decision Is that all stigma is?

Should the Rich Pay Higher Fines? A $100 speeding ticket is nothing to Bill Gates –Intuition: scale it up to get deterrence –Economics, first pass: If his gain from speeding is more than our loss Then it is efficient to let him speed And since he pays the damage, we have no net loss--not an issue of transfers between rich and poor Economics, second pass –This assumes the Pigouvian world of zero enforcement cost, punishment=damage –We have just seen that optimal punishment also depends in part on how much it deters –And Gates has a different supply curve for offenses than I do –So a different optimal level of punishment

Intuition vs Economics Two kinds of offenses –Payoff in utility Time saved by speeding Satisfaction of slugging a guy you don’t like –Payoff in money Supply curve for rich vs poor –If the payoff is in money The same fine should deter rich and poor The dollars of payoff are worth less to the poor too –If the payoff is in utility, it takes a higher fine to deter the richer offender The intuition is half right –Sometimes the optimal fine is higher for the rich –Because it takes a higher fine to deter –Sometimes it is lower, because –Deterring the rich criminal costs more than it is worth

Why not hang them all? Suppose that currently we catch half the offenders, jail them for five years –The offender is indifferent between five years in jail and 1/6 chance of death Convict him, roll a die, 1-5 turn him free, 6 hang him On average, the cost to the offender is the same as before So the deterrence is the same as before, so no more offenses And we don ’ t have to pay for any prisons –Improved version: Only catch one in 12, hang him We don ’ t have to spend as much on police to catch one in twelve And we can raise our standard of proof, only convict when very sure We are substituting a more efficient for a less efficient punishment –On average, everything else stays the same –So what ’ s wrong with it? Anything?

Improved Version There are more efficient punishments than hanging –Use the threat of hanging to collect fines Can ’ t pay the whole $100,000 fine? Every $10,000 reduces the chance of hanging by.1 –Set a fine, make the prisoner work it off –Execute the prisoner--and use his organs for transplants If for some reason we don ’ t want to execute –Corporal punishment is more efficient than imprisonment –And imprisonment is more efficient the more unpleasant it is –Since that makes each year provide more deterrence Is there anything wrong with this story?

Everyone’s Incentives Matter If punishing people is actually profitable –That is a reason to punish them –Whether or not they are guilty –Think of it as rent seeking via control of the legal process Examples –Mencken story –Niven story –Punitive damages –Civil forfeiture If not profitable but cheap, still reason to worry –A cheap punishment can become a profitable one via a market transaction –And if it is cheap, no need to be careful –“How do we know which ones are heretics?” –“Kill them all. God will know his own.”

The Market for Organs Argument for –Shortage of organs –Selling when you die benefits your heirs –Selling in advance benefits you – Everyone has a spare kidney Argument against –Rent seeking problem –$50,000 on the hoof Cannibalism –Why waste all that good meat? Yet all societies do –Perhaps for the same reason. –Solution — strong requirement of chain of title, or … Can only sell a future claim to your organs.

Other paths Saga period Iceland Problems? –Poor plaintiff? –Judgement proof defendants –Stability of the system Solutions –Marketable tort claims –Outlawry, credit, debt thralldom –Njal saga story 18th century England puzzle: Why prosecute? Solutions: –Deterrence as a private good — prosecution associations –In order to be paid to drop the prosecution Puzzle: Why the bloody code? Shasta county

Is the common law efficient? General structure of property, contract, real property bundling, I.P. etc. seem to fit, at least roughly. Some details fit –Ultrahazardous activities –When easements enforceable against innocent purchaser –Negligence as a soln to double liability problem –Different standards of proof Some don ’ t –Retreat from freedom of contract Penalty clause unenforceable No organ sales, no legal adoption market, … No waivers in product liability … but. Arbitration contracts. –Treatment of value of life in common law Many we simply can ’ t tell: –Coming to the nuisance twice –Himalayan photographer vs eggshell skull

Summary Start with –one behavioral assumption (rationality) –One conjecture about the organizing principle: Efficiency End with –A way of seeing all law as solutions to a common set of problems, with a single objective, in different contexts. –A way of applying the same set of ideas across legal topics: Risk allocation--contract, crime and tort. Ex Ante/Ex Post –Tort and criminal law of highways –Explaining why attempts are criminal –Employment contracts. Externalities, incentives, double causation problem, transaction costs –Pollution regulation –Defining property rights in land –Common law of nuisance –Tort law--auto accidents. Product liability. –Contract damage rules

Way of making all law in all times and places into one problem, with evidence useful across the board –Shasta County and inefficient punishment –18 th century England and deterrence as a private good –Iceland and transferrable torts. A way of figuring out what the law should be (if you believe in efficiency) Perhaps a way of explaining the law as it is –Now –And across time and space