Economics of Crime and Enforcement

Anthony Yezer

• Publisher: Routledge
• Year: 2014
• ISBN:
  9781317472452
• Edition: 1
• Topic: Business
• Subtopic: Business generale
• Index: Business

This text is designed for use in a course on the economics of crime in a variety of settings. Assuming only a previous course in basic microeconomics, this innovative book is strongly linked to the new theoretical and empirical journal literature. Showing the power of microeconomics in action, Yezer covers a wide array of topics. There are chapters on the following topics: benefit-cost and the imprisonment decision, enforcement games, juvenile crime, private enforcement, economics of 3 strikes law, broken windows strategies, police profiling, and crime in developing countries. There are also separate chapters on guns, drugs, and capital punishment. Timely boxed examples are found throughout. Problems at the end of each chapter allow students to reinforce their microeconomics skills and to gain insight into the way they can be applied to case examples.

Part I Fundamental Economics of Crime and Enforcement

DOI: 10.4324/9781315704975-1

1 The Economic Rationale for the Criminal Law

DOI: 10.4324/9781315704975-2

Introduction

This chapter discusses the reasons that economists have identified for having governments criminalize and penalize certain activities though the criminal justice system. The first logical point is to distinguish the role of the civil law from that of criminal law. Given that agents who suffer harm are able to take actions under the civil law to recover from those at fault, the criminal law could be seen as piling on by government. ¹ However, economists have identified a role for the criminal justice system, even in a world in which civil litigation operates efficiently and plaintiffs and defendants can obtain justice at low cost. ²

The first section of this chapter discusses the role of the criminal law as a supplement to civil actions. Then the interaction between the decision to criminalize and the function of the civil law is developed. Examples of the way in which economic analysis could enter the decision to criminalize an activity are provided. Finally, the role of economic analysis in understanding and/or guiding the operation of the criminal justice system is considered.

If the Civil Law Functions Well, Why is There a Need for a Criminal Justice System?

The classification system adopted by the Journal of Economic Literature lists criminal law (k14 in the JEL system) as one of six basic areas of the law. ³ Historically, legal systems from early Babylonian law following the Code of Hammurabi through Roman law merged the civil and criminal law. The civil law often arose because disputes that were not important enough to be judged by a monarch or an agent of the monarch were decided in civil courts. This process, particularly areas in which the common law developed, began in the Middle Ages. However, a sharp distinction between civil and criminal law was not achieved until the nineteenth century in Europe. Of course, economics was developing at this time, and among economists there is a clear distinction between the economics of crime and other areas of economic analysis of the law. Indeed, the subject matter of the civil law, including property, contracts, torts, regulation, business, labor, bankruptcy, etc., has been studied in courses titled “Law and Economics” for some time, and the subject is covered by several outstanding textbooks. In contrast, the criminal law has been given far less attention.

Two questions arise. What is the difference between the civil law and criminal law (or equivalently between law and economics and the economics of crime)? Why do societies have both the civil and criminal laws?

From the point of view of economic theory, the distinction between law and economics and the economics of crime follows logically from welfare economics. Law and economics primarily deals with disputes among agents that do not produce significant effects on third parties. There are many occasions in this text in which there will be a sharp distinction between what can be justified based on economic theory and the actual criminal law, ranging from enforcement to prisons. However, this is not the case with the distinction between civil and criminal law, where there is a solid rationale for separating the civil and criminal law.

The following example illustrates the difference between the civil and criminal law. Suppose Alpha’s automobile collides with Beta’s while they drive on a highway or perhaps are at an intersection. The collision may delay traffic and impose modest costs on others, but the harm is concentrated on Beta. The civil law is designed to allow Beta to collect damages for any harm done. To be compensated for damages, Beta must establish that Alpha was at “fault” in the resulting collision. Specifically, Beta must show that Alpha was “negligent” or “reckless,” having failed to exercise the legal standard of precaution just before the collision. Alpha, in turn, will argue that her driving was “careful” and that she was not at fault. If the case is heard before a jury, a finding of fault is based on the preponderance of evidence and generally requires a majority or supermajority, usually 2/3 or 3/4 of the jurors, rather than unanimity.

Alternatively, suppose Alpha is driving recklessly and erratically at a high rate of speed. She does not collide with Beta, and therefore there is no cause for civil action. However, the police may stop Alpha and issue a citation for reckless driving. ⁴ Because this is a criminal offense, Alpha will have to appear in court and should be entitled to a jury trial if she requests one. The officer who issued the citation will appear, and other witnesses for the prosecution, including Beta, may be called. Alpha will be judged “guilty” or “not guilty” of the crime of reckless driving. In a jury trial, unanimity based on guilt beyond a reasonable doubt is required for conviction. Beta is usually not entitled to receive compensation, although some victim compensation schemes have been adopted. For a formal example, see the Criminal Injury Compensation Authority website, which discusses the terms under which awards ranging from £1,000 to £500,000 are offered to those seriously injured by violent crime in England, Scotland, and Wales.

As noted previously, this significant difference in treatment under the civil and criminal law is totally consistent with welfare economics. The collision imposed costs on Beta. Under the civil law, if Alpha was indeed negligent, damages should be paid by Alpha because she should be made to consider the costs of her actions when deciding how carefully to drive. Criteria for efficient decision making in welfare economics requires that agents consider the full marginal cost of their decisions. The potential for a civil judgment against Alpha will ensure that she experiences the full cost of her decision to operate a vehicle negligently. That cost includes the expected damage to her automobile and harm to Beta. This is formally illustrated in the benefit/

Figure 1.1 Benefit/Cost Analysis of Negligent Driving

cost diagram (Figure 1.1). The curve labeled B _α reflects the expected marginal benefit to Alpha from driving carelessly, and the curves C _α and C _β reflect the expected marginal costs to Alpha and Beta, respectively, associated with this careless driving. The marginal benefit curve slopes down because the additional benefit from being increasingly careless falls. Put another way, the benefit from driving 80 mph rather than 70 mph is larger than the benefit from going from 90 mph to 100 mph. The expected marginal cost of careless driving increases because, as negligence increases, the likelihood and severity of a costly collision increases. ⁵

If Alpha chooses her level of precaution based only on her own benefits and costs, she will drive in a rather careless fashion, as shown by the intersection of marginal benefit B _a with her own private marginal costs, C _α , at N ₀ negligence. Thus, in the absence of recourse against her by Beta, Alpha would drive rather carelessly (choosing N ₀ ), perhaps texting or engaging in other distracting activities. But the civil law requires Alpha to consider damages to Beta. This means that the total marginal cost associated with carelessness facing Alpha is the sum of the curves C _α , and C _β , shown by the dashed line in Figure 1.1. Alpha now chooses N ₁ as her negligence level. This is substantially more precaution than she showed in the absence of the prospect of civil action against her. In the jargon of welfare economics, the civil law causes Alpha to “internalize the externality” of her careless driving.

What if Alpha has automobile insurance? Then she must consider the effect of her carelessness on her future premiums. Without the civil law, the insurance company would only consider C _α when resetting Alpha’s insurance premiums after an accident, but with civil liability, the full cost to both Alpha and Beta influences Alpha’s premiums. Thus, the civil law promotes efficiency in the precaution that agents take in driving and, by extension, in all manner of decisions that can impose costs on other agents.

In the driving example above, the term expected costs was used. Obviously, collisions do not result from every instance of distracted driving. It is possible to text many times without consequence. However, distracted driving raises the probability of accident. The extra cost due to the rise in the probability of collision is the basis for the increase in the expected cost of collision as negligence rises.

Now suppose that a criminal statute prohibits reckless operation of an automobile. Alpha must consider civil action by Beta that would surely follow a collision, because reckless driving certainly implies negligence under the civil law. However, if Alpha collides with Beta, a police officer called to the collision should issue a citation for a criminal violation. Now Alpha faces action by Beta in civil court, and she must appear in criminal court where she can be fined or even incarcerated.

This treatment of Alpha under both civil law and criminal law is consistent with the requirements for efficiency under welfare economics. Remarkably, the analysis changes so little that Figure 1.1 needs to be modified only slightly to make the argument for economic efficiency when there is reckless driving in violation of the criminal law. Figure 1.2 shows Alpha’s cost–benefit analysis of reckless driving. The curves reflecting marginal benefit to Alpha, B _α , expected marginal cost from damage to Alpha, C _α , and expected marginal cost to Beta, C _β have the same form as on the previous diagram. The entire scale of the diagram might be shifted because the horizontal axis measures reckless rather than negligent driving, but that is not important here. As was the case with Figure 1.1, the intersection of B _α and C _α indicates the point where marginal benefit to Alpha equals marginal cost to Alpha, and R ₀ is the level of reckless driving she would select in the absence of the civil or criminal law. If expected damages to Beta are considered under the civil law, Alpha will choose level R ₁ of recklessness based on the sum of marginal costs to Beta and herself. These results are analogous to those in Figure 1.1.

Figure 1.2 illustrates the economic analysis justifying criminal penalties for reckless driving. All other drivers using the roadway at the same time as Alpha experience her high-speed erratic driving. There may be hundreds of these individuals, and they all bear a cost as a result of being on the same roadway as Alpha. They may have to stop, pull over, or swerve to avoid her careening vehicle. While the cost to any individual driver may be small, when cumulated over hundreds of vehicles on the roadway, the marginal cost associated with a reckless driver can be large. The external marginal cost associated with Alpha’s reckless driving is given by the ...