1. Professor: Keren Mertens Horn Office: Wheatley 5-78B Office Hours: TR 2:30-4:00 pm E-mail: Keren.horn@umb.edu ECONOMICS OF THE METROPOLITAN AREA 212G, SPRING 2013

2. © 2012 The McGraw-Hill Companies. All Rights Reserved 2  Economic approach: Criminals respond to incentives  Crime reduced by traditional crime-fighting resources (police, prisons)  Crime reduced by increasing returns to lawful activities (schools)  Crime reduction strategies have costs, so as economists we must weigh the benefits of reducing crimes to the associated cost  The socially optimal level of crime is positive! INTRODUCTION TO CRIME 13-2

3. © 2012 The McGraw-Hill Companies. All Rights Reserved 3 13-3 CRIME STATISTICS: AMOUNT OF CRIME

4. © 2012 The McGraw-Hill Companies. All Rights Reserved 4 13-4 CRIME STATISTICS: WHO ARE THE VICTIMS

5. © 2012 The McGraw-Hill Companies. All Rights Reserved 5  Fact #1 – Victimization rates for violent crime decrease as income increases  Fact #2 – Victimization rates lowest in rural areas and highest in central cities. Suburbs fall between these two extremes.  Fact #3 – For violent crime, victimization rate is 29.1 for blacks and 21.5 for whites. Blacks are also more frequently the victims of property crime. CRIME STATISTICS: WHO ARE THE VICTIMS

6. © 2012 The McGraw-Hill Companies. All Rights Reserved 6 13-6 CRIME STATISTICS: COSTS OF CRIME  What factors would we include when trying to estimate the costs of crime?  Costs to victims (lost property, medical expenses, and value of lives cut short)  Costs of criminal justice system (police, courts, correction facilities)  Private prevention methods (alarm systems, hired guards, Lo-Jack)  Opportunity costs of people in prison (some people who are currently in prison would be productive members of society and we are preventing those beneficial transactions)  Total costs estimated at $250 billion per year

7. © 2012 The McGraw-Hill Companies. All Rights Reserved 7  Economics of double parking  Consider opportunity to buy a concert ticket (that you value at $44) vs. potential cost of parking ticket (50-50 chance of paying $36)  Who will take the risk?  People generally risk averse: Need more than +$44 to offset risk of -$36  People differ in aversion to anti-social actions--anguish cost THE RATIONAL CRIMINAL 13-7

8. © 2012 The McGraw-Hill Companies. All Rights Reserved 8  What are the marginal costs? (this represents the supply curve)  Probability of being caught and imprisonment  Length of prison term  Opportunity cost of time spent in prison  Anguish cost of crime  As the value of the loot goes up this creates incentives for people with higher marginal costs of crime to enter the crime market (upward sloping)  What are the marginal benefits?  The loot taken  At the top of the marginal-benefit curve are the easiest targets that are most lucrative, as we move along the curve, criminals turn to less and less lucrative targets. EQUILIBRIUM QUANTITY OF CRIME

9. © 2012 The McGraw-Hill Companies. All Rights Reserved 9 13-9 EQUILIBRIUM QUANTITY OF CRIME

10. © 2012 The McGraw-Hill Companies. All Rights Reserved 10  This economic framework can help us analyze what the appropriate responses are to decreasing the amount of crime.  How does increasing the certainty of punishment affect the amount of crimes committed?  What about increasing the severity of punishment?  Could employment programs or additional educational opportunities decrease crime? APPLICATION OF MARKET FOR CRIME

11. © 2012 The McGraw-Hill Companies. All Rights Reserved 11 13-11 INCREASING THE CERTAINTY OF PUNISHMENT?

12. © 2012 The McGraw-Hill Companies. All Rights Reserved 12 13-12 INCREASING THE CERTAINTY OF PUNISHMENT?

13. © 2012 The McGraw-Hill Companies. All Rights Reserved 13  Elasticity of supply of crime: %∆Crime/%∆MC  Elasticity of supply w.r.t. Probability of prison = -0.30  10% increase in the probability of prison decreases crime by 3%  Elasticity of supply w.r.t. Arrest ratio = -0.30  10% increase in the probability of arrest decreases crime by 3%  Elasticity of supply w.r.t. Number of police = -0.40 to -0.50  10% increase in the police force decreases crime by 4% - 5% EMPIRICAL EVIDENCE: CRIME SUPPLY ELASTICITIES 13-13

14. © 2012 The McGraw-Hill Companies. All Rights Reserved 14  Longer prison term increases crime cost, shifting MC (supply) curve upward  BUT -- Elasticity close to zero (almost no impact of increasing severity of punishment on deterring crime)  Why?  Longer prison term causes offsetting changes  Harden criminal: lower anguish cost shifts MC (supply) shifts downward  Prison schooling: skill acquisition shifts MC (supply) downward INCREASING THE SEVERITY OF PUNISHMENT 13-14

15. © 2012 The McGraw-Hill Companies. All Rights Reserved 15  Education increases wages, decreasing crime  High-school graduation wage premium  High-school graduates earn 50% more than those who do not graduate high school.  College wage premium  College graduates earn twice as much as high school graduates (100% more) EDUCATION AND CRIME 13-15

16. © 2012 The McGraw-Hill Companies. All Rights Reserved 16  Studies of link between unemployment rate and crime  Weak relationship between crime and overall unemployment rate  Teenage crime (first-time offenders) sensitive to unemployment rate  Studies of link between lawful wages and crime  Increase in lawful wage increases opportunity cost, shifting MC (supply) upward  Low-skilled workers: Elasticity (crime, wage) between -1.0 and -2.0  10% increase in wages decreases crime between 10% and 20%  Improving job prospects for low-skilled workers reduces crime LAWFUL OPPORTUNITIES AND CRIME 13-16

17. © 2012 The McGraw-Hill Companies. All Rights Reserved 17  Recent study by Lochner and Moretti (2004) examines the education-crime link for high school education  Additional year of high school:  0.10 percentage point decline for white males and 0.40 percentage point decline for black males  Graduation decreases crime participation rates of white males:  9% for violent crime; 5% for drug crime; 10% for property crime  Elasticity (Arrest rate, Graduation rate) = -2.0 (violent) and -1.30 (motor vehicle)  Effects of preventing a dropout  Cost per year of schooling = $6,000  Benefit to student = $8,400 more per year  Benefit to society through reduction in crime = $1,600 per year for rest of work/crime life  Benefits greatly outweigh costs EDUCATION-CRIME LINK FOR HIGH- SCHOOL EDUCATION

18. © 2012 The McGraw-Hill Companies. All Rights Reserved 18  How much crime should we choose?  Society has a limited amount of resources to allocate to crime prevention  Victim Costs associated with different crimes vary  Costs include: costs of injury, recovery time, lost property  Estimated cost per victim: $370 (larceny), $1,500 (burglary), $4,000 (auto theft), $13,000 (armed robbery), $15,000 (assault)  Are some crimes less expensive to experience than to prevent? THE OPTIMAL AMOUNT OF CRIME? 13-18

19. © 2012 The McGraw-Hill Companies. All Rights Reserved 19 THE OPTIMAL AMOUNT OF CRIME? Marginal Prevention Cost: Its more expensive to prevent more crimes. Marginal Victim Cost: Since we focus on one particular crime in this example (burglary) marginal cost is constant ($1,500) Logical for government to allocate scarce resources to prevention of crimes where costs of prevention are lower than costs to victims.

20. © 2012 The McGraw-Hill Companies. All Rights Reserved 20  Elasticity of crime rate with respect to size = 0.15  10% increase in the population increases the crime rate by about 1.5 percent.  Reasons presented by economists (Glaeser and Sacerdote, 1996):  More loot (25% of difference)  Average value of crime $900 in city of 1mill, $550 in a small city (below 50,000)  Lower probability of arrest (15% of difference)  Pool of suspects larger, lawful citizens less likely to help their neighbor APPLICATION: WHY MORE CRIME IN BIG CITIES? 13-20

21. © 2012 The McGraw-Hill Companies. All Rights Reserved 21 13-21 APPLICATION: WHY MORE CRIME IN BIG CITIES?

22. © 2012 The McGraw-Hill Companies. All Rights Reserved 22 APPLICATION: WHY DID CRIME DECLINE?

23. © 2012 The McGraw-Hill Companies. All Rights Reserved 23 APPLICATION: WHY DID CRIME DECLINE?

24. © 2012 The McGraw-Hill Companies. All Rights Reserved 24  Describe the evidence used either by Levitt or Greenberg to explain why they believe better policing strategies do not contribute to the decline of crime.  Describe the evidence used by Levitt to explain why he believes gun control laws do not contribute to the decline of crime.  Describe the evidence used by Levitt to explain why he believes the number of police do contribute to the declines in crime. DISCUSSION QUESTIONS

25. © 2012 The McGraw-Hill Companies. All Rights Reserved 25  Economists consistently find that more arrests are associated with less crime (Blumstein, Nagin, and Cohen, 1978; Cameron, 1988; and Levitt, 1995)  So some things police do can reduce crime, but some tactics may be more successful than others.  Examples:  Direct Patrolling – concentrates police resources on small geographic areas using detailed information on crimes and complaints to determine where/when to set up patrols.  Findings support declines in crime in “hot spots” but it may only divert crime  Problem Oriented Policing – citizens report which crime-related difficulties are bothering them and police work to address those concerns.  Problem is that what people talk about as being the most pressing problems, may just be the ones that are described most eloquently, not the most costly crimes  Zero-tolerance Policing – sometimes called “Broken Windows” based on theory that people commit crimes where they believe they can get away with them  Verdict still out on this policy  Stop and Frisk – police officer suspects someone of committing a crime they can stop and question them and frisk them to see if they are carrying a weapon  Will hear from all of you on what you think of this policy CAN POLICING STRATEGIES REDUCE THREAT OF CRIME?

26. © 2012 The McGraw-Hill Companies. All Rights Reserved 26  Guns allow people to cause (or threaten) severe physical damage, without exerting great strength of skill, and without coming extremely close to target.  Guns are also used for hunting and for protection. At least several hundred thousand times a year people use guns to ward off attackers. Guns are also used for crime.  Empirical evidence on gun control:  Lott (1998) concentrates on state laws that require a gun permit for a concealed weapon.  Lott finds these laws cut murder, rape and aggravated assault rates  Note-some of these declines are for gun owners themselves, so this is not evidence in favor of gun prohibition  Duggan (2001) reviews this research and makes some statistical adjustments that lead to the conclusion that these laws have no effect on violence reduction  Overall empirical evidence on gun control laws are weak CAN GUN CONTROL REDUCE THREAT OF CRIME?

27. © 2012 The McGraw-Hill Companies. All Rights Reserved 27  Crime rates higher among children born to reluctant parents  Abortion decreased number of unwanted births  Availability of abortion in 1970s reduced the number of people maturing in crime-prone years in 1990s--a favorable demographic change  Cut crime rate by 10%; responsible for one third of crime drop  Caution: Other studies show smaller effect ROLE OF LEGALIZED ABORTION 13-27