Recht und Ökonomie (Law and Economics) LVA-Nr.: WS 2011/12 (8) Criminal Law 1 of 26 Prof. Dr. Friedrich Schneider Institut für Volkswirtschaftslehre

2 of 26 Recht und Ökonomie WS 2011/12Criminal Law (Strafrecht)Prof. Dr. Friedrich Schneider Overview (1) Introduction (2) Rational Decision Making (3) Market for Crime (4) Incentives (5) Risk and Deterrence (6) Further Topic: Death Penalty

3 of 26 Recht und Ökonomie WS 2011/12Criminal Law (Strafrecht)Prof. Dr. Friedrich Schneider 1. Introduction Crime causes costs: economic problem of optimal allocation of resources Empirical evidence for influence of economic variables on the frequency of crime Employ economic modelling and econometric techniques to analyse relationship between: Crime, Deterrence (Fine/Sentence), and Economic situation.

4 of 26 Recht und Ökonomie WS 2011/12Criminal Law (Strafrecht)Prof. Dr. Friedrich Schneider 2. Rational Decision Making If: (expected) utility from crime > (expected) utility (EU) from alternative time use (like honest work!) Crime will be commited when EU > 0 EU = pU(Y i – f) + (1 – p)(U(Y i ) – U(Y l )), where p = probability of sentencing U = von Neumann-Morgenstern utility functionU(.)/ Y>0 Y i(l) = income from illegal (legal) action f = fine (or imprisonment) in case of sentencing

5 of 26 Recht und Ökonomie WS 2011/12Criminal Law (Strafrecht)Prof. Dr. Friedrich Schneider 3. Market for Crime Equilibrium level of crime is determined by Supply (S) positive relationship between π und C: the higher the profit (π) resulting from criminal act (C), the higher the incentive to commit the crime. Demand (D) negative relationship between π und C: the more criminal acts, the higher the sensitivity of (potential) victims, profits of criminal acts decline.

6 of 26 Recht und Ökonomie WS 2011/12Criminal Law (Strafrecht)Prof. Dr. Friedrich Schneider 3. Market for Crime In all countries the optimal level of crime is greater than zero! … crime is a normal social phenomenon whose complete abolishment by government is neither possible nor desirable. (Gary Becker 1968) Optimal level of crime where marginal cost of deterrence are equal to their marginal revenue (return).

7 of 26 Recht und Ökonomie WS 2011/12Criminal Law (Strafrecht)Prof. Dr. Friedrich Schneider 3. Market for Crime Consequences of (equal) increases in wealth (or income): more protective measures, D declines Consequences of increases in inequality: D, and possibly also S, increase Total effect: crime may increase despite more protection!

8 of 26 Recht und Ökonomie WS 2011/12Criminal Law (Strafrecht)Prof. Dr. Friedrich Schneider 4. Crime Incentives Negative incentives: increase probability of sentencing, and increase sentences or fines. Positive incentives: increase wages, reduce unemployment, increase social benefits, and improve rehabilitation.

9 of 26 Recht und Ökonomie WS 2011/12Criminal Law (Strafrecht)Prof. Dr. Friedrich Schneider 4. Crime Incentives Why did crime rates (unexpectedly) fall in the USA during the 1990s? Major factors according to the study of Levitt 2003: increase in the police force, more inmates in jails, reduced consumption of crack/other drugs, legalisation of abortions, and prevention programs.

10 of 26 Recht und Ökonomie WS 2011/12Criminal Law (Strafrecht)Prof. Dr. Friedrich Schneider 4. Crime Incentives Many studies showing a variety of influences of variables follow from the economic model of crime: Unemployment, job availability, inequality in income (distribution), police intensity, risk of sanctioning, demography (age, different nationalities, racial composition), drug consumption, and migration.

11 of 26 Recht und Ökonomie WS 2011/12Criminal Law (Strafrecht)Prof. Dr. Friedrich Schneider 5. Risk and Deterrence Probability of sanction, fine, and imprisonment Individuals may be risk averse, risk neutral, or risk lovers depending on their economic and sociological situation Important: product of probability of sanction and (expected) sentence, i. e. p times f is relevant! increasing f and reducing p is, in general, more efficient Fines are, in general, preferred to imprisonment, again being more efficient labour resources lost plus cost of jailing

12 of 26 Recht und Ökonomie WS 2011/12Criminal Law (Strafrecht)Prof. Dr. Friedrich Schneider 5. Risk and Deterrence Imprisonment: if individuals are risk averse, raising imprisonment terms allows to lower probability of sanctioning more than proportionally expected prison terms fall, thus cost to society decrease if individuals are risk loving, raising imprisonment terms allows to lower probability of sanctioning less than proportionally expected prison terms rise, thus cost to society increase

13 of 26 Recht und Ökonomie WS 2011/12Criminal Law (Strafrecht)Prof. Dr. Friedrich Schneider 5. Risk and Deterrence Some Empirical Results according to U.S. studies from 2005: Estimated cost of reducing property crime by 1 % more police officers USD 34.0 million in a district (state) more prison sentences USD 3.2 million (court costs) longer prison sentences USD 2.4 million (prison costs).

14 of 26 Recht und Ökonomie WS 2011/12Criminal Law (Strafrecht)Prof. Dr. Friedrich Schneider 5. Risk and Deterrence Some Empirical Results according to U.S. studies from 2005: Elasticities of property crimes (pc): a 10 % increase of police officers reduces pc by3.2 % rate of imprisonment reduces pc by4.8 % length of imprisonment reduces pc by8.5 % increase in unemployment increases pc by4.6 % Larger impact on burglary and robbery Smaller impact on theft

15 of 26 Recht und Ökonomie WS 2011/12Criminal Law (Strafrecht)Prof. Dr. Friedrich Schneider 5. Risk and Deterrence: Draconian Punishments They may not be appropriate, because criminals lack income or wealth. judges may hesitate to convict (death penalty!). increased litigation leading to higher legal cost. of perverse incentives: steal bread and shoot baker. of disrespect for the law being unjust.

16 of 26 Recht und Ökonomie WS 2011/12Criminal Law (Strafrecht)Prof. Dr. Friedrich Schneider 6. Economics of crime: Further Topic: Death Penalty limitations to economic analyses of crime capital punishment and deterrence addictive drugs and crime criminalization of addictive drugs plus: in-depth analyses of all of the (economic) factors described above influencing criminal activities

17 of 26 Recht und Ökonomie WS 2011/12Criminal Law (Strafrecht)Prof. Dr. Friedrich Schneider 6. Further Topic: Death Penalty Article in the NY Times (Nov. 18, 2007): Does death penalty save lives? Some facts: USA, 2003: 16,500 homicides 144 death sentences 3,400 inmates on death row 65 executions

18 of 26 Recht und Ökonomie WS 2011/12Criminal Law (Strafrecht)Prof. Dr. Friedrich Schneider Survey by DONOHUE & WOLFERS (2006) Main results: (1) "The view that the death penalty deters is still the product of belief, not evidence... On balance, the evidence suggests that the death penalty may increase the murder rate." (2) When D&W compared death penalty states with non-death penalty states, they found no evidence of any effect of executions on murder rates, either up or down. 6. Further Topic: Death Penalty As Deterrent?

19 of 26 Recht und Ökonomie WS 2011/12Criminal Law (Strafrecht)Prof. Dr. Friedrich Schneider 6. Further Topic: Death Penalty and Theories of Deterrence (1) Economic theory raise price fur murder (2) Behavioural (psychological) theory small likelihood is treated as zero probability, or low frequency with great publicity deters (3) Sociological theory executions reduce value of life, implies brutalisation leads to more homicides

20 of 26 Recht und Ökonomie WS 2011/12Criminal Law (Strafrecht)Prof. Dr. Friedrich Schneider 6. Further Topic: Death Penalty and US History of Murders & Executions Results from Donohue and Wolfers (2006): Aggregate time series show no clear correlation between homicides and executions (20th century) : no correlation : executions down, homicides up : both increase : both decrease : moratorium on executions, homicides up : executions up, homicides remain high : executions up, homicides down

21 of 26 Recht und Ökonomie WS 2011/12Criminal Law (Strafrecht)Prof. Dr. Friedrich Schneider 6. Further Topic: Death Penalty: Comparison of 6 US- States without Death Penalty to USA Results from Donohue and Wolfers (2006): Period analyzed: 1960 – 2000 Abolition or moratorium and reinstatement in all other states Result: very similar movement in the 6 States to the USA overall figures, high positive correlation between the two time series! Conclusion: there must be other factors at work!

22 of 26 Recht und Ökonomie WS 2011/12Criminal Law (Strafrecht)Prof. Dr. Friedrich Schneider 6. Further Topic: Death Penalty - are other Factors important? DEZHBAKHSH & SHEPHERD (2004) focus in their before/after comparison only on States that abolished or that adopted death penalty: abolition: 10 – 20 % increase in homicides reinstatement: 5 – 10 % decrease in homicides But: control group of States that had no change showed very similar effects! no difference to States that experienced changes!

23 of 26 Recht und Ökonomie WS 2011/12Criminal Law (Strafrecht)Prof. Dr. Friedrich Schneider 6. Further Topic: Death Penalty - How to Measure Death Penalty? Binary variable – death penalty law? Y/N Persons sentenced to death (always annual data) Persons executed Persons sentenced to death (per 100,000 inhabitants) Persons sentenced to death (per total sentences) Persons executed (per 100,000 inhabitants) Persons executed (per 1,000 prisoners) Persons executed (per prisoners on death row) Persons on death row

24 of 26 Recht und Ökonomie WS 2011/12Criminal Law (Strafrecht)Prof. Dr. Friedrich Schneider 6. Further Topic: Death Penalty: Executions: Further Results Not very robust results: (1) When introducing year-fixed-effects into the DEZHBAKHSH & SHEPHERD (2004) study the effect of executions becomes statistically insignificant! (2) D & S use absolute numbers of executions – heavy influence of Texas: omission of Texas has the same effect as above! (3) Using executions per 1,000 prisoner or per 100,000 residents again has the same effect!

25 of 26 Recht und Ökonomie WS 2011/12Criminal Law (Strafrecht)Prof. Dr. Friedrich Schneider 6. Further Topic: Death Penalty Conclusion on Deterrence Effect of Death Penalty (1) Empirical evidence is (very) inconclusive (2) Thus it cannot be employed to justify the death penalty (3) Should one turn to more philosophical reasons and justifications? E.g. the government must act on the basis of a moral obligation since inactivity (omission) may endanger its citizens?