Economics of Crime II

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Economics of Crime II
Econ 3670 Applications of Choice Theory Roberto
Martinez-Espiñeira
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The tragedy of the commons in crime

• Crime prevention and public law enforcement
  requires scarce resources
• How are these allocated?
• They are affected by the tragedy of the commons,
  since there is common-property access to most of
  them

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The tragedy of the commons in crime

• Police have common access to prosecuting
  resources
• Prosecutors and judges have common access then to
  prison space
• They do not pay the full price of overcrowding
  the commons, just a fractional price, while they
  get 100 of the glory from giving tough sentences
  

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The tragedy of the commons in crime

• Their dominant strategy is to contribute to the
  overcrowding
• Resources are rationed on a first-come-first-serve
  basis
• Other rationing mechanisms might be used too
• Rich neighbourhoods and more politically
  influential ones get more resources

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The tragedy of the commons in crime

• The overcrowding decreases the effectiveness of
  the whole system
• In particular it reduces the deterrence effect of
  the legal system (like in Colombia now)

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The deterrence effect of higher penalties on crime

• Becker suggests that one of the ways we have to
  deter crime is to increase the penalties for
  crime if caught
• But does this affect the probability of being
  caught, prosecuted, and/or convicted?

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The deterrence effect of higher penalties on crime

• Stiffer sanctions change the behaviour of police
  officers. When the only other option is punitive
  punishment, officers might choose to handle more
  offences "off-the-record." 
• Stiffer sanctions change the behaviour of
  criminals. When potential penalties rise,
  potential criminals become more vigilant.  And,
  if they are apprehended, criminals will fight
  harder to defend themselves. Criminal defendants
  facing a potential death sentence expend all
  available resources. 

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The deterrence effect of higher penalties on crime

• Stiffer sanctions change the behaviour of
  jurors. Reasonable doubt is a slippery concept. 
  Jurors demand for evidence will vary with
  potential penalties
• Stiffer sanctions change the behaviour of
  prosecutors, who have considerable discretion
  with respect to what charges are pursued in
  court.  
• See Stonebrakers (How Tough is too Tough?) and
  Andreoni (1995)
• Andreoni, J. (1995), 'Criminal Deterrence in the
  Reduced Form A New Perspective on Ehrlich's
  Seminal Study', Economic Inquiry 33(3), 476-483.

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Why and how to reduce crime

• The benefits of committing a crime include a
  variety of monetary and psychic pleasures
• criminals also incur opportunity costs for the
  time and energy devoted to their activity and
  they face an expectation of being caught and
  jailed/killed
• rational criminals will choose to pursue crime as
  long as its marginal benefit covers its marginal
  cost

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Why and how to reduce crime

• One way to reduce crime is to manipulate this
  balance
• But why would we want to do that?
• Because most costs are external costs
• They are ignored by the criminals so they supply
  much more crime than it is efficient
• Because criminals largely ignore these costs to
  others, they produce inefficiently high amounts
  of crime

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Why and how to reduce crime

• Should I steal 100 from you?
• If the MB of theft to me is 100 and I estimate
  my MC as 80 I'll steal private MB gt private MC
• The theft creates 20 of net value for me
• My 20 gain is more than offset by your 100
  loss, however that does not necessarily enter my
  calculations

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Why and how to reduce crime

• Should I steal your laptop from you?
• If the MB of theft to me is 300 (that I get by
  selling the laptop second hand) and I estimate my
  MC as 200 I'll steal private MB gt private MC
• You would lose much more, because your laptop
  might contain your 3670 essay!
• That is why in many places there are institutions
  that help owners of stolen things buy them back
  from the thieves

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Why and how to reduce crime

• My stuff is worth to me more than what is worth
  to the thief
• There is the root of the inefficiency!

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Why and how to reduce crime

• Of course many of the external costs of crime
  have to do with private protection costs
• By the way, is it better to walk around with
  visible guns or to have the right to concealed
  guns?

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Why and how to reduce crime

• There are several ways to protect your home or
  car from theft
• One is to do so in a visible way (a burglar alarm
  with a sign posted on your front door,
  advertising its presence)
• Thieves are then more likely to seek easier,
  softer targets, that is, houses and autos without
  such visible protection

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Why and how to reduce crime

• According to Steven Landsburg "When your neighbor
  installs a burglar alarm, thoughtful burglars are
  encouraged to choose a different target like
  your house, for example. It's rather as if your
  neighbor had hired an exterminator to drive all
  the vermin next door."

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Why and how to reduce crime

• In contrast, hidden protections against break-ins
  and theft work better
• If the robber does not know which cars or houses
  are defended against his depredations, but knows
  for sure that a significant number of them are,
  then he is more inclined to leave this field
  entirely
• Here, each potential victim who protects himself
  protects his neighbors, and indeed, all others,
  as well

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Why and how to reduce crime

• That is why Lojacks have worked to so well to
  protect all cars (owners of Lojacks generate
  external benefits, while owning a Club bar
  generates external costs)
• concealed cell phone ownership has reduced risks
  for everyone

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Why and how to reduce crime

• So if there is too much crime for efficiency
• We should decrease the expected net benefits of
  crime
• That is precisely what the criminal justice
  system is designed to do
• By imposing penalties we raise the MC of crime to
  its suppliers and decrease the equilibrium
  quantity 

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Drop of crime in the 1990s

• From a positive perspective, differences in crime
  across time or across individuals should be
  attributable to differences in the costs and
  benefits of crime
• For example, after a steady rise during the
  1970's and 1980's criminal activity fell
  significantly in the 1990's
• According to economist Steven Levitt, shifts in
  costs and benefits tell much of the story  

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Drop of crime in the 1990s

• On the benefit or demand side Levitt finds that
  the strong economy of the 1990's explains a
  small, but significant part of the decline
• As the economy grew and the job opportunities
  multiplied, potential criminals shifted from
  illegal to legal means of support

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Drop of crime in the 1990s

• A strong economy would decrease the number of
  crimes related to theft (robbery, auto theft,
  burglary, ) not things like murder or rape
• Is this totally true???
• Additionally, Levitt reminds us that many of the
  activities linked to crime are normal goods
  (going to night clubs, owning a car, drinking
  alcohol,)

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Drop of crime in the 1990s

• However, changes on the supply or MC side of
  crime seem to have been more critical
• First,  there were significant increases in the
  number of police officers on the streets
• Second, incarceration increased substantially,
  which impacted crime both by removing potential
  criminals from the streets and by acting as a
  potential deterrent to others

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Drop of crime in the 1990s

• By 2003 the U.S. led the world in terms of the
  percent of its population behind bars (701 per
  100,000 residents, followed by Russia at 603 per
  100,000 residents)
• The U.S. rate is more than four times higher than
  the median rate across the world.  As a
  comparison, the rate in Canada was 116 prisoners
  per 100,000 and rates in Western Europe ranged
  from 59 (Norway) to 141 (England) 

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Drop of crime in the 1990s

• Although increases in police and imprisonment
  both matter, Levitt's research fingers increased
  police presence as being the more cost effective
  approach
• When measuring this effect, one should carefully
  consider that more police resources decrease
  crime, but crime increases police resources

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Drop of crime in the 1990s

• Levitt identifies another and far more
  controversial factor for decreased crime rates
  legalized abortion
• unwanted children are more likely to commit
  crimes, he argues that legalized abortion has cut
  the number of unwanted children
• The historical timing is what we should expect.
  Roe vs. Wade, the landmark case that led to
  increased abortion, was settled in 1973

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Drop of crime in the 1990s

• If abortion cuts crime, the effect should begin
  to appear about 18 years later this is exactly
  what happened
• Moreover, differences in abortion rates across
  states correlate with differences in crime rates
  in subsequent years.
• Levitt does not tout abortion as a particularly
  efficient weapon against crime he clearly
  prefers additional police officers for that. He
  merely notes that increased abortion accounts for
  a significant chunk of the slowdown in criminal
  activity

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Drop of crime in the 1990s

• Levitt also mentions the receding crack
  epidemic as a cause for the decline in crime