Economics of Crime II Econ 3670 Applications of

Economics of Crime II Econ 3670 Applications of Choice Theory Roberto Martinez-Espiñeira

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 commonproperty access to most of them

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

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

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)

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?

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.

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 Stonebraker’s (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.

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

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

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 > 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

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 > 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

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!

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?

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

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. "

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

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

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

Drop of crime in the 1990 s • 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

Drop of crime in the 1990 s • 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

Drop of crime in the 1990 s • 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, …)

Drop of crime in the 1990 s • 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

Drop of crime in the 1990 s • 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)

Drop of crime in the 1990 s • 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

Drop of crime in the 1990 s • 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

Drop of crime in the 1990 s • 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

Drop of crime in the 1990 s • Levitt also mentions the receding “crack epidemic” as a cause for the decline in crime