The Economics of Crime

An Introduction to Rational Crime Analysis

Harold Winter

• Editorial: Routledge
• Año: 2019
• ISBN:
  9780429883774
• Edición: 2
• Categoría: Negocios y empresa
• Categoría: Negocios en general

The Economics of Crime presents a review of economic scholarly research in the ever-growing field of crime and punishment. Without using graphs or mathematical equations, Winter combines theory and empirical evidence relating to public policy concerns over a wide range of controversial topics such as the death penalty, racial bias in the criminal justice system, gun control, the war on drugs, fines versus imprisonment, policing tactics, and shaming punishments.

In addition to offering an updated and expanded coverage of these, and other topics, this second edition is more international in scope, with the inclusion of studies that use data from Italy, Australia, the U.K., Singapore, Brazil, and others. Also included is a brand-new chapter on the application of behavioral economics to crime and punishment, providing readers with a succinct introduction to this modern and increasingly important approach to economic issues.

By requiring no previous knowledge of economics, this book continues to be the perfect choice for students new to the study of economics and public policy, whether it is in the discipline of economics, political science, criminology, law, or any other field that is concerned with issues in crime and punishment. Furthermore, due to its accessibility, The Economics of Crime can be enjoyed by anyone who follows current public policy debate over some of society's most contentious issues.

1 Rational crime basics

I would like to introduce you to the economic analysis of crime by asking you the following question: would you rather live in a society in which murders occur, or in a society in which murders never occur? This is a question that requires no expertise to answer, and there is no right or wrong answer because I am asking you to state a personal preference. So, how would you answer this question? If you are like nearly every person I have asked this question, you will give your answer quickly and confidently—you prefer to live in a society in which murders do not occur. I, on the other hand, am not like nearly every person I have asked this question. I would prefer to live in a society in which murders occur. Actually, I would much prefer to live in such a society. This is not because I am a murderer, or a sadist, or uncaring about the human tragedies associated with murder. My response stems from one simple fact—I think about these issues using economic reasoning.

Evidence (and common knowledge) suggest that crime is not a rare occurrence in the United States (U.S.). In 2016, there were 1,248,185 violent crimes (murder and nonnegligent manslaughter, rape, robbery, and aggravated assault) reported in the U.S., for a violent crime rate of 386.3 per 100,000 population. There were also 7,919,035 property crimes (burglary, larceny, and motor vehicle theft), for a property crime rate of 2.451 per 100,000 population. Specifically for the crime of murder, there were 17,250 murders reported in 2016, for a murder rate of 5.3 per 100,000 population (FBI Uniform Crime Report, 2016; see the appendix to this chapter for crime definitions). And murder is not just an American phenomenon. For example, if we consider murder rates for several other nations, we find those with higher, and those with lower, rates when compared to the U.S. rate. In the United Kingdom (U.K.) and Japan, the murder rates were, respectively, 1 per 100,000 in 2016 and 0.5 per 100,000 in 2008. In Brazil and South Africa, the rates were, respectively, 21 per 100,000 in 2011 and 31.8 per 100,000 in 2010 (U.K.: Office for National Statistics; South Africa: Africa Check Fact Sheet; Japan and Brazil: UN Data).

Maybe, in some utopian sense, it would be preferable to live in a murder-free world. But from a more pragmatic perspective, exactly what sort of society would we have to live in to drive the murder rate down to zero? Would we have to live in a society depicted in George Orwell’s novel 1984 in which the actions of every citizen are tightly controlled and thoroughly monitored by the state? Could there be some way to identify potential murderers at an early age and intervene to either somehow “re-educate” them or remove them from open society? Obviously, regardless of how noble is the goal of reducing the murder rate to zero, it is simply not likely to be technically possible to do so. Instead, how about considering a more modest goal, such as reducing the murder rate by 10 percent? Furthermore, let’s assume that this goal is technically possible to achieve. There is still one more question I would like to ask—is this goal desirable?

In the first economics class I took in college, the professor defined economics as the study of the allocation of scarce resources. This leads to the first important concept in thinking about crime from an economic perspective: because it requires costly resources to reduce crime, the optimal amount of crime is likely to be positive. For example, reducing the murder rate by 10 percent would require a tremendous amount of resources. As a society, we would have to spend more on apprehending and convicting murderers, as well as on punishing them. Is this worth doing?

In justifying this additional expenditure, two factors are worth considering. First, do we get a good return for our money? That is, if we spend a dollar on crime reduction, do we get at least a dollar back in benefits? And second, what else could we spend the money on? That is, could we get a better return spending a dollar on something other than reducing the murder rate, such as national defense, health care, education, maintaining infrastructure, and so on? If it is not worth the additional expenditure, for either reason, it is not economically efficient to reduce the murder rate by 10 percent. In other words, it is optimal to have a positive murder rate.

Thus, economists generally don’t view crime as something society would be better off without. We understand that it would not be technically feasible to eliminate all crime and, even more important, it would not be desirable to do so because of the substantial resource costs associated with crime prevention. The key economic issues concerning the costs of reducing crime center around the amount of resources that should be devoted to fighting crime, and how these resources should be divided between the different branches of the criminal justice system such as the police, the courts, and the prison system. But whenever economists discuss the costs of enacting social policy, a discussion of the benefits cannot be far behind.

The rational criminal

Offsetting the costs of crime prevention are the benefits in terms of reduced crime rates. Although there are several avenues in which crime rates can be reduced, of foremost interest to economists is what is known as the deterrent effect, that is, the ability of social policy to increase the cost to the criminal of committing crime, thus reducing the incentive to commit crime. This leads to the second important concept in thinking about crime from an economic perspective: economists typically assume that criminals are rational in the sense that they weigh the costs and benefits of their actions and act accordingly. This implies that crime can be deterred by social policies that manipulate the probabilities of arrest and conviction, and by policies that determine the nature and severity of punishment.

The concept of the “rational” criminal is often a tough sell to the noneconomist. But the concept of rationality does not require that all criminals make explicit calculations of the costs and benefits of their actions. Rationality does not even require that most criminals make these kinds of calculations. As long as some criminals are somewhat rational, we then can ask whether crime rates can be reduced when more resources are devoted to increasing the probabilities of arrest and conviction, or by increasing the severity of punishment. The core economic prediction is quite simple: by increasing the costs of committing crime, fewer crimes will be committed. Whether this theoretical prediction is supported by empirical evidence is an entirely different matter that will be discussed throughout much of the rest of this book. But before discussing this evidence, it will be useful to take a closer look at what is meant by the rational criminal.

Let’s take a trip back to the American Old West. Three bank robbers are holding up a bank and threatening the employees and customers at gun point. After the leader of the gang grabs all the money and heads for the door, one of the robbers points his gun at a teller and is about to shoot. Just at the last second, the leader of the gang slaps the arm of his partner and prevents him from killing the teller. The startled partner looks at the leader and asks: “Why did you do that? They hang us for murder the same as they hang us for robbing banks. Why leave any witnesses?” To that the leader replies: “The posse rides harder for murderers.”

That clever verbal exchange takes place in a movie (unfortunately, one for which I cannot remember the title). I think it is an inspired piece of screenwriting because it accurately depicts some very subtle trade-offs that criminals may consider when they are planning to commit crimes. It is obvious that criminals rob banks to steal money. Offsetting this financial benefit, however, are the costs of bank robbery, such as purchasing weapons and tools, and incurring planning costs. Furthermore, and possibly most important, bank robbers must contend with the risk of being caught and punished.

Put yourself in the boots of the bank robber with the itchy trigger finger. You realize that if you are caught, you will face the death penalty regardless of whether you kill the witnesses. Because the punishment for the less severe crime of bank robbery is the same as for the more severe crime of murder, you reason that there is no additional deterrent effect dissuading you from committing murder. As a matter of fact, you cleverly conclude that if you kill the witnesses, you may face a lower probability of being convicted if you are eventually apprehended. So, you raise your gun to start killing witnesses as you feel that at this point, you have nothing to lose and may have something to gain.

The leader of the gang, however, adds another layer of complexity to the problem. While there are two forces enhancing the incentive to commit murder—the punishment is the same for bank robbery and murder, and live witnesses increase the chance of conviction—the leader recognizes that the probability of being apprehended may also depend on the nature of the crime. He believes that the crime of murder may provide the posse with the incentive to track the murderers relentlessly, whereas the crime of bank robbery may lead the posse to give up the chase after a short time. This is very sophisticated thinking by both bank robbers. They recognize that punishment does not occur 100 percent of the time. Instead, they have partitioned the punishment into its two basic components: the severity of punishment, and the certainty of punishment. This partition represents an important aspect of the economics of crime and punishment.

The severity of punishment refers to the form of the ultimate sanction a criminal faces. A prison sentence or a monetary fine are two very common sanctions. The longer the prison sentence, or the larger the fine, the more severe is the punishment. There are a variety of other sanctions that can be used, ranging from less severe punishments such as probation or community service, to more severe punishments such as torture or the death penalty.

The certainty of punishment, on the other hand, takes into account the probabilities of apprehension and conviction. To manipulate these probabilities, the authorities can, for example, hire more police officers, use more sophisticated investigation techniques, devote more resources to prosecuting cases, and so on. Regardless of how severe a punishment is, to be enforced it requires the criminal to be apprehended and convicted. To an economist, then, the term “punishment” has little meaning if it does not explicitly include both the severity and certainty components. Instead, when discussing the concept of criminal punishment, the term economists typically refer to is known as the expected punishment. A simple numerical example will help illustrate this important concept.

Assume that the criminal faces a sanction that is a monetary fine of $1,000, but only faces a 50 percent chance of being apprehended and convicted (that is, the severity of punishment is $1,000 while the certainty of punishment is 50 percent). The criminal does not simply face a $1,000 punishment. Instead, the criminal faces an expected (or, an average) punishment of (50 percent)($1,000) = $500. Notice that the criminal is never actually punished by the exact amount of $500. The sanction will either be $1,000 or nothing. Because the sanction is not incurred with 100 percent certainty, the criminal confronts only an expected punishment that is less than the actual sanction.

Perhaps a more intuitively pleasing way of thinking about the concept of expected punishment is to consider a criminal who repeatedly undertakes an illegal activity and faces a 50 percent chance of a $1,000 punishment each time. With every undertaking of the illegal activity, the criminal will either pay a fine of $1,000 or face no sanction at all. Over many periods of time, however, the $1,000 fine will be incurred in 50 percent of the periods, and not incurred in the rest of the periods. On average, then, the per-period fine is $500, even though the criminal never pays an actual fine of $500.

Returning to the Old West bank robbers, what the two robbers disagree about is the magnitude of the expected punishment. They both recognize that the ultimate sanction they face is the death penalty, but one believes they face a lower certainty of being punished if the witnesses are killed. The other, however, believes they face a higher certainty of punishment if the witnesses are killed. Regardless of who is correct, it is this concern over both the certainty of punishment and the severity of punishment that is at the core of rational crime analysis. To put it succinctly, economic models of crime predict the following: an increase in the expected punishment lowers the crime rate, while a decrease in the expected punishment raises the crime rate.

As mentioned above, rational crime analysis does not require all, or even most, criminals to behave with an explicit understanding of the expected punishment they face. Individuals who commit spontaneous crimes of passion, or individuals who are intoxicated, may not (at the moment the crime is committed) be too concerned with the expected punishment they face. There also may be individuals who are poorly informed about the expected punishment they face and possibly grossly underestimate it. There may even be individuals who, perversely, do not consider the expected punishment to be a cost. For example, in some violent street gangs “serving time” may be considered a badge of honor, or part of an initiation process. Thus, it is easy to imagine that many criminals may not respond to changes in the expected punishment.

Even if no criminals are rational in the sense that their behavior can be manipulated by changes in the expected punishment, this does not eliminate the value of rational crime analysis. What it does suggest is that if the deterrent effect does not exist (or even if it does), it is worth considering how else social policy can be designed to reduce crime rates. A prison sentence that doesn’t deter crime may still reduce crime by incapacitating potential future criminals for the lengths of their sentences. Better educational and job market opportunities may steer potential criminals away from future illicit behavior. There are many avenues in which crime rates can be reduced, and all of them can still be subject to an economic cost-benefit rational analysis.

Nevertheless, to the extent that the expected punishment does provide a deterrent effect, this can have important implications when designing social policy to reduce crime rates. For example, consider a city in which the mayor is concerned with the high rate of automobile drivers who run red lights. What sort of policy suggestions can the mayor consider for reducing these incidents? More police officers may be hired, or traffic light cameras may be installed, to increase the probability of apprehension. Both of these options may be quite costly to implement, but they may greatly enhance deterrence. Alternatively, stiffer fines can be issued to drivers who are caught, without devoting more resources to apprehension. This may be a low-resource cost option for the city to adopt, but how effective will it be in terms of deterrence if the certainty of being caught still remains very low? How large must the fine be set to achieve the desired level of deterrence? Can other sanctions achieve the desired goal, such as loss of driver’s license, community service, or even a prison sentence? Rational crime analysis is well suited to consider these trade-offs between the resource costs of these policy options and their potential deterrence benefits.

At the end of the day, however, no amount of economic theory can address the pragmatic problem of quantifying the costs and benefits of reducing crime rates. Even if it is reasonably straightforward to calculate the costs of implementing some policy option, such as hiring more police officers or installing traffic light cameras (and note, not all policy options have costs that are easily calculated), quantifying the deterrent effect is a much more difficult task. Furthermore, while there is no doubt that implementing policy does require the use of costly resources, there is doubt that a deterrent effect even exists in many settings. It may appear that it is commonsense to believe that harsher (expected) punishment can have a dampening effect on the crime rate, but ultimately it is an empirical issue.

Before turning to these empirical issues in subsequent chapters, one last fundamental concern in approaching crime from an economic perspective needs to be addressed. Whenever social policy is discussed, it is important to be clear of the social objective that is underlying the justification for implementing policy. It may seem obvious that, in this setting, the social objective is to reduce crime. But it is far from obvious precisely what that means. What should be counted as costs and benefits in a crime policy cost-benefit analysis? Should we weigh the costs of criminal behavior against the benefits that accrue to the criminal? Might it be possible that there are some crimes society actually wants to encourage? With this in mind, we turn now to the concept of efficient crime.

The benefit of crime

When you were younger, did you ever dream of growing up and becoming a police officer? Well, I am now going to give you a brief opportunity to fulfill that dream. Pretend that you are a state trooper whose current duty involves monitoring a stretch of highway that has a speed limit of 55 m.p.h., but often attracts drivers who tend to far exceed that limit. You are cleverly parked out of the view of oncoming traffic, and you have your radar detector at the ready. All of a sudden a car goes racing by in excess of 90 m.p.h., and you immediately leap into action. In a matter of minutes, you have the driver pulled over to the side of the road and you are ready to confront the culprit.

At more than 35 m.p.h. above the speed limit, you are expecting to present th...