Crime and Economics

An Introduction

Kevin Albertson, Chris Fox

• Publisher: Willan
• Year: 2011
• Print ISBN: 9781843928423
• eBook ISBN: 9781136697203
• Edition: 1
• Topic: Social Sciences
• Subtopic: Criminology
• Index: Social Sciences

Crime and Economics provides the first comprehensive and accessible text to address the economics of crime within the study of crime and criminology.

The economics of crime is an area of growing activity and concern, increasingly influential both to the study of crime and criminal justice and to the formulation of crime reduction and criminal justice policy. As well as providing an overview of the relationship between economics and crime, this book poses key questions such as: What is the impact of the labour market and poverty on crime? Can society decrease criminal activity from a basis of economic disincentives? What forms of crime reduction and methods of reducing re-offending are most cost beneficial? Can illicit organised crime and illicit drug markets be understood better through the application of economic analysis?For those interested in economic methods, but without previous economic training, this book also provides an accessible overview of key areas such as cost-benefit analysis, econometrics and the debate around how to estimate the costs of crime.

This book will be key reading for undergraduate and postgraduate students of criminology and economics and those working in the criminal justice system including practitioners, managers and policy makers.

1 Introduction

Why crime and economics?

Why do we need a book on crime and economics? At first glance the reader might wonder what economics can bring to the study of crime. As Levitt and Miles point out:

The casual observer might expect that economics has little to contribute to the understanding of criminal activity. Economics is a discipline seemingly concerned with market-based transactions in which parties act purposefully to realize the benefits of exchange. In contrast, many criminal acts, such as homicide and theft, are inherently nonconsensual, even coercive. Moreover, many crimes appear to be acts of impulse or emotion rather than the kind of rational decision making associated with market behavior.

(Levitt and Miles 2006: 147)

However, as Levitt and Miles go on to show, this is to take too narrow a view of economics and what it has to offer. Over recent years, the ‘reach’ of economics has grown. In their best-selling book, Freakonomics, Levitt and Dubner (2005: 14) write economics is ‘the hidden side of … everything’. As an applied social science, the tools economists wield have been applied to subjects ranging from: obesity (Chou et al. 2004); to sport (Morley and Thomas 2005, for example); and climate change (for example, Nordhaus 2007; Stern 2007); to name but a few.

Over recent years economists have played an increasing role in research and policy on crime, crime reduction and criminal justice. This has taken many forms. Following Gary Becker’s landmark 1968 article, economic debate on crime in the 1970s concentrated in particular on developing economic theories of criminal behaviour and the effect of criminal justice sanctions. The improvement of data available through the criminal justice system has allowed economists to use their favoured forms of analysis in this field. Economists have undertaken cost–benefit analyses of crime reduction and criminal justice interventions, estimated the costs of different types of crime and contributed to the development of criminal justice policy. And anyway, it’s fun, isn’t it? What we wonder is: why isn’t economics more prominent in criminology courses and why are economists not more prominent in the development of criminal justice policy?

Why isn’t economics more prominent in the study of crime?

Looking first at the teaching of criminology in universities, we would argue that there is more economics in most criminology courses than most students (and, sometimes, their lecturers) realise. Take the standard introduction to criminological theory which crops up in the early stages of most undergraduate and taught postgraduate criminology degrees. Such modules will often take a chronological approach and trace the origins of criminology back to the Enlightenment. There we are introduced to the ‘classical’ thinkers who first turned their attention to crime and laid some of the foundations for the modern discipline of criminology; writers such as Beccaria and Bentham. However, what is not always made clear is that these were writers on the political economy, some of whom also laid important foundations for the modern discipline of economics.

Working through the nineteenth century and into the twentieth century the typical criminology student is introduced to a variety of theorists ranging from Durkheim to Marx, from Merton to Shaw and McKay. Writers such as these were all, to greater or lesser extents, concerned with economics. In the development of criminology as a discipline, key theorists returned repeatedly to the economic dimensions of crime. In the late 1970s and 1980s a distinctly economic theory of crime – Rational Choice theory – became increasingly influential in criminological theory as well as crime reduction policy-making.

One of the principal tenets of economics, as we shall see, is that specialisation improves the range of outcomes available. It would be true to say that this has applied to the disciplines of Economics and Sociology/Criminology, which have sometimes specialised to the point of no longer communicating. Another economic principle, however, is ‘gains from trade’. It is clear both disciplines have much to learn from each other.

Why isn’t economics more prominent in criminal justice policy-making?

Until fairly recently, economists and economics have not tended to be prominent in the development of criminal justice policy. Reflecting on the situation in the USA in the mid 1990s, there might have been some truth in DiIulio’s rather patronising observation that:

As crime has risen to the top of the nation’s domestic policy agenda, so has the need for a body of policy-relevant knowledge about crime, for theoretical ideas and empirical findings that can be translated into popular discourse and carved into public laws. To be frank, the professional criminologists, sociologists, political scientists, law professors, public management specialists and self-styled practitioner-scholars who have dominated the field are incapable of meeting this challenge. They generally lack the quantitative and formal modelling skills necessary to shed new light on old controversies or provide analytically compelling answers to methodologically complicated questions. In my view, therefore, criminal justice is a field that needs to be conquered by economists.

(DiIulio 1996: 3)

However, in the last 10 years or so things have changed. Take penal policy as an example. Concern on both sides of the Atlantic about the inexorable rise in prison populations has increasingly drawn on economic arguments. In the UK, Patrick (now Lord) Carter’s first review of the criminal justice system (Carter 2003) drew on economic concepts both to understand the problem (a demand-led system) and to propose solutions (an overall approach to sentencing which would better match supply and demand to improve cost-effectiveness). More recently, in a speech in 2007, Lord Philips, the Lord Chief Justice, drew on economic thinking when he noted that:

If you decide to lock up one man for a minimum term of 30 years, you are investing £1 million or more in punishing him. That sum could pay for quite a few surgical operations or for a lot of remedial training in some of the schools where the staff are struggling to cope with the problems of trying to teach children who cannot even understand English.

(Philips 2007: 6)

Recently, Kenneth Clarke, Lord Chancellor and Secretary of State for Justice has asked:

how do we actually go about improving the safety and protecting the property of honest citizens in the most cost effective way?

(Clarke 2010: unnumbered)

The solution proposed by the 2010 UK Coalition Government seems to be one which is explicitly ‘economic’. For example, ‘payment by results’ is proposed as one of the key tools in reforming criminal justice services:

The principle of incentivising performance through payment by results, with success based on the absence of re-offending, should be introduced for prisons, the providers of community sentences and the providers of rehabilitation programmes – whether in the public, private or voluntary sector. With devolved responsibilities and new incentives, we can create a revolution in how offenders are managed, and drive down re-offending.

(Conservative Party 2009: 49)

Thus, the Coalition Government proposes that rehabilitation services would be paid for in part according to how successful they were at reducing re-offending. A basic tariff is paid to cover their costs and an additional tariff paid if targets to reduce re-offending are met. In delivering this, they quote the ‘Peterborough Social Impact Bond’ as a promising model (Clarke 2010).

In the USA, concern over rising prison numbers has also increasingly been framed in economic terms. Recently, the PEW Center on the States (2008: 3) reported:

Three decades of growth in America’s prison population has quietly nudged the nation across a sobering threshold: for the first time, more than one in every 100 adults is now confined in an American jail or prison.

(PEW Center on the States 2008: 3)

However, the Center was also concerned with rising prison costs, which were reported to have ‘exploded’ from $10.6 billion in 1987 to $44 billion in 2007; a 315 per cent jump (ibid.). Some of the most innovative approaches to tackling these issues have also drawn on economics. Take, for example, the Justice Reinvestment movement which uses economic analysis to model the potential savings in criminal justice budgets that can be achieved by investing in the most cost-effective interventions. This process of moving some expenditure from prisons to more progressive, community-based crime reduction measures will, it is expected, reduce the long-term demand for prison places.

Thus, to return to DiIulio’s observation from the mid-1990s, writing in 2010 we can now say, with a degree of confidence, that a ‘conquest’ of criminal justice policy by economists is no longer necessary. What we have seen over the last decade is that the application of quantitative techniques more familiar, in the UK at least, to economists than criminologists has added further weight to the argument that criminologists and economists can do more together than we are able to apart.

The need for a book on crime and economics

It is surprising, despite the important relationship that exists between economics and crime, and, increasingly, between economists and criminologists, that to date no publication has attempted a comprehensive survey of crime and economics. Two publications of which the current authors are aware are: Winter’s (2008) The Economics of Crime: An Introduction to Rational Crime Analysis; and Fielding et al.’s (2000) The Economic Dimensions of Crime. We have found Winter’s publication useful in shaping our own thinking on the economics of crime and cite it at several points in the following, but we hope our book goes beyond Winter’s work to provide a more wide-ranging and in-depth analysis. Fielding et al.’s book, an edited collection, is comprised of some classic essays on crime and economics with some contemporary essays by influential academics in the field. Again, we have found this an informative book and reference essays from it at several points. However in places the essays in Fielding et al. are likely to be inaccessible to a reader without a background in economics and much has happened in this field since it was published.

There are also a number of edited collections and textbooks which cover some of the issues we address in this book and again we are indebted to them for the insight they have given us. These include chapters by Reiner on ‘Political economy, crime and criminal justice’ and by Levi on ‘Organized crime and terrorism’ in Maguire et al.’s (2007) The Oxford Handbook of Criminology and Hale’s chapter on ‘Economic marginalization, social exclusion, and crime’ in Hale et al. (2009) Criminology. Finally, from the field of popular science we must also acknowledge Levitt and Dubner’s (2005) Freakonomics, several chapters of which make accessible to a wide audience a number of Levitt’s influential studies on crime and crime reduction.

For whom is this book written?

This book has been written for two main groups of people. The first group are undergraduate and postgraduate students studying crime and economics. We recognise that those students might either be criminologists making their first foray into the world of economics or vice versa and therefore we have written this book assuming neither a previous understanding of criminology nor of economics. The second main group of people for whom this book is written is made up of those working in the criminal justice system, whether as practitioners, managers or policy-makers, and who are increasingly being asked to think about the economic dimensions of crime, crime reduction and criminal justice.

Finally, we hope that this book will be of interest to readers from around the world. Most studies that we cite are from the UK and USA and our own research has been undertaken primarily in the UK. However, many important developments in this area have taken place in other countries and, where possible, we cover these as well.

What do we mean by crime and economics?

Before we go too much further we should say something about what we understand by crime and economics.

Crime

There is a vibrant debate among criminologists and policy-makers about the nature of crime. For criminologists this argument ranges from: debates about the reliability of crime statistics; to whether or not the experiences and perceptions of individual victims and offenders can ever be fully understood by others (be they researchers or police officers). Criminologists have also begun to compare the relative harm that results from activities such as polluting the environment or neglecting to protect the safety of workers to more ‘traditional’ understandings of crime, such as burglary. For policy-makers, the debates range from: discussions about the relative importance of tackling ‘anti-social behaviours’ such as littering and noisy neighbours; concerns about the way in which certain individuals and communities seem to bear a disproportionate burden of crime; to differing views on the relative threats to society posed by transnational organised crime and terrorism. At points in this book – and where economists have something to add – we touch on these debates. For instance, economists have devised various methods for placing a monetary value on different types of crime and have contributed to debates about the relative harms posed to society by organised crime, terrorism and illicit drugs markets; and, at a theoretical level, economists have put forward particular conceptions of crime and criminality which have important implications for development of criminal justice policy. Nevertheless we recognise that the debate around how to define crime is one which is too broad and sophisticated for us to seek to engage fully.

Economics

The study of economics arises from the scarcity of resources. Wherever there is scarcity individuals and society must decide how to divide them up. Thinking specifically about crime, Levitt and Miles (2006) argue that four characteristics distinguish the economic approach to the study of crime from that of other social sciences. These characteristics are:

1. an emphasis on the role of incentives in determining the behaviour of individuals, whether they are criminals, victims, or those responsible for enforcing the law;

2. the use of econometric approaches that seek to differentiate correlation from causality in nonexperimental settings;

3. a focus on broad, public policy implications rather than evaluation of specific, small-scale interventions; and

4. the use of cost–benefit analysis as the metric for evaluating public policies.

While we do not entirely agree with their third point, these characteristics are useful for helping to outline a theoretical and a methodological project that encompasses most economic work in relation to crime, crime reduction and criminal justice.

What this book covers

It might appear at first sight that this book is written for disparate groups – undergraduate students in two disciplines and criminal justice practitioners – however, we believe this adds to the strength of our approach. Economics students will benefit from the application of their core skills to real-world examples and criminologists from the insights economics can bring. Thus we begin by taking no knowledge as given, only the intelligence and interest of the reader. In the first section of the book – Chapters Two, Three and Four – we introduce the basic tools and concepts of the discipline of economics and how they are used in the explanation and analysis of crime and criminal behaviour. Policy recommendations are suggested to which we return in the applied/empirical chapters of the book.

Chapter Two is by far the most economically focused of the book. Before the reader can appreciate the application of the tools of economics (the viewpoint of an economist) it is necessary briefly to describe what these may be. Economics arises because there are only limited resources available to us; it is the study of how to make the best use of those resources. Often economics is confused with other disciplines – with, for example, accounting or business – however, economics is a much broader discipline than this. It seeks nothing less than to describe the way that humans, as individuals, as collectives, as businesses, as charities, as nations and societies and indeed across the planet, interact with each other and with the world. Economics doesn’t necessarily claim to be the oldest human profession; it does, however, predate any profession for the simple reason that all actions undertaken with any aforethought to improve one’s circumstances fall within the scope of economics. Indeed, one of the strengths of economics is that a lot of it, once considered appropriately, would seem to involve little more than the informed application of common sense.

In Chapter Two we look at the common-sense principles which underlie every society: the gains from specialisation, which of course lead to the concepts of trading and the market. Economists assume humans have a particular enjoyment from, for example, consumption – if we did not, why would we engage in it? This enjoyment is commonly termed ‘utility’. In general humans are interested in improving their own utility. However, arising from specialisation and trade come a new set of problems, the problems of dealing with other humans and their (potentially) conflicting interests and values. What might make us better-off might leave other people worse off. While human society can produce and consume much greater amounts per capita than any of us could on our own, this very society can only exist if there are structures and codes to which we adhere. If these structures and codes are transgressed, inefficiency will result. Why is it then that humans have such difficulty in adhering to these structures? Whither temptation? We show that economic principles can explain this.

The seminal article on criminality from an economic perspective is the work of Becker (1968) which we discuss at length in Chapter Three. Two of the basic problems which are of interest to economists are ‘which actions are likely to improve utility?’ and ‘how much of that action should be carried out?’ Because each action undertaken has a cost as well as a benefit, humans as individuals, and as societies, get to choose how to utilise scarce resources. Becker considers these questions from the point of view of a so...

Table of contents

• Cover
• Title
• Copyright
• Dedication
• Contents
• List of Figures
• List of Tables
• 1. Introduction
• 2. A brief introduction to economic theory
• 3. Modelling criminal behaviour
• 4. Rational Choice theory in criminology
• 5. The labour market, poverty and crime
• 6. Economic tools: Estimating the bottom line of criminal justice interventions
• 7. The costs of crime
• 8. Crime reduction
• 9. The economic analysis of prisons and community justice alternatives
• 10. Organised crime
• 11. Illicit drugs
• Notes
• Bibliography
• Subject index
• Author index