Economics of Crime and Punishment

Criminal Law  Criminal intent  Public harm Fear? Victimless crimes?  Public prosecution

Which is more costly to society? I.Convicting an innocent person II.Failing to convict a guilty person

Criminal Law  Criminal intent  Public harm Fear? Victimless crimes?  Public prosecution  Standard of proof  Punishment Civil penalties (damages) are designed to get injurers to internalize the costs so that only efficient harms take place Criminal punishment is designed to deter

Can Crime Be Efficient?  You steal my car?  Lost hiker breaks into cabin?  Efficient murder? A very rich man decides he would derive a huge amount of pleasure from hunting and killing a human being. He finds ten people who all agree that he can pay them each $1,000,000, they’ll draw straws, and he can hunt and kill whoever draws the shortest straw. Armin Meiwes Posted an ad online “looking for a well-built 18-to-30-year-old to be slaughtered and consumed”

Rational Criminal Model  Max y(x) – p(x)*f(x) Commit crime if MB > MC  Example: Grand Theft Auto Car = $40,000 Income = $60,000 p(arrest) =.20 p(conviction) =.50 Jail = 5 years Where: x = amount of crime y(x) = criminal payoff p(x) = probability of punishment f(x) = punishment MB = $40,000 MC = (5)($60,000)(.20)(.50)= $30,000 Steal the car!

Rational Criminal Model  Policy Implications Increase jail sentence Increase probability of arrest Increase probability of conviction Increase income  Tradeoff between severity and certainty of punishment? High punishment + low certainty Low punishment + high certainty Fines or Jail?

 Momentary lapse (regret) model Benefit from crime is immediate Punishment, if it occurs, comes in the future  Commit crime if: PV(Benefit) > PV(Expected Future Punishment) Do criminals have high discount rates? Slightly Irrational Criminal Model

Optimal Crime  Objective: min SC = Harm + Prevention Costs  What happens to optimal crime if: Population increases? Less expensive surveillance technology is developed? Crime $ Marginal Harm Marginal Prevention Cost C* C0C0 TH 1 TPC 1 Public deterrence vs Private deterrence

Crime Stats  Prisoners: 2,000,000  Probation + Parole: 5,000,000  Violent crime rates have been falling since the 1980s  Criminals are disproportionally young males  Violent criminals and their victims are disproportionally black  Small number of people commit large proportion of violent crimes  Social cost? Criminal justice = $100 billion Private spending = $100 billion Harm to victims = $300 billion 700 per 100,000 $500 billion or 4% GDP

Does Punishment Deter Crime?  Crime = f(EP, Labor Market, Socioeconomic) Aggregate data (“crime rate” studies) Small population studies

Does Crime Pay? Criminal and Legitimate Earnings per Year (1988 $) High-RateLow-Rate Crime TypeCrimeWorkCrimeWork Burglary$5,711$5,540$2,368$7,931 Robbery6,5413,7662,8145,816 Swindling14,8016,2456,8168,113 Auto theft26,0432,30815,0085,457 Mixed6,9155,0865,6266,956 Source: Wilson and Abrahamse (1992)

What caused the drop in crime rates during the 1990s?  Economic boom of the 1990s?  More victim precaution?  Gun Control laws?  Change in policing strategies?  Increased capital punishment?  Increased number of police?  Increased incapacitation?  Decline of crack cocaine?  Legalized abortion?

Death Penalty 4958 executions

Death Penalty 77,522 on death row 304 found to be innocent

Death Penalty

What caused the drop in crime rates during the 1990s?  Economic boom of the 1990s?  More victim precaution?  Gun Control laws?  Change in policing strategies?  Increased capital punishment?  Increased number of police?  Increased incapacitation?  Decline of crack cocaine?  Legalized abortion?

Drugs  Prohibition aims to raise expected punishment for buyers/sellers Impact is to raise price of drugs  Two types of users: Casual: more elastic demand (D 1 ) Addicts: more inelastic demand (D 2 ) Cocaine $ S1S1 $ S1S1 D1D1 D2D2 P0P0 S2S2 S2S2 P1P1 P2P2 Q0Q0 Q1Q1 Q0Q0 Q2Q2