Economics of Crime
Econ 3670 Applications of Choice Theory
Roberto Martinez-Espiñeira
1
A Criminal World – the US Picture
Washington DC
30.0
Pretoria
20.0
Moscow
Talinn
10.0
New York
Warsaw
Amsterdam
Belfast
Prague
Berne
Copenhagen
Berlin
Madrid
Budapest
Stockholm
Brussels
London
Dublin
Paris
Helsinki
Edinburgh
Wellington
Lisbon
Geneva
Oslo
Sydney
Vienna
Ljubljana
Athens
Tokyo
Rome
Ottawa
Canberra
Lefkosia
Murders per 100,000 population of city
2
A Criminal World – Murderous Places
Murders per 100,000 population of world cities (1997-1999 average)
60.0
50.0
50.8
40.0
27.5
18.2
9.4
11.2
5.4 5.5
4.3 5.2
3.6
3.4
3.2
3.1
3.0
2.2 2.4 2.4 2.7 2.7
1.2 1.2 1.5 1.5 1.6 1.7 1.9 2.0 2.0 2.1 2.2 2.2
0.1 0.6 1.0
0.0
But note that these are figures for selected cities. If we
looked at the highest rates in cities as such, USA, South
African and Russian would still up there… but South America
would bring in many candidates (Colombia, Brazil, Mexico,
etc.)
Also see here update of murder rates at the country level
https://en.wikipedia.org/wiki/List_of_countries_by_intentional
_homicide_rate
3 A Criminal World – US’s Top Ten for Murder
The Top Ten Murder Cities in US in 2002
45.8
45.0
42.0
38.3
40.0
35.0
30.0
24.7
18.0
18.1
19.0
Columbus
Philadelphia
15.8
17.5
Milwaukee
20.0
22.2
Los Angeles
25.0
15.0
10.0
5.0
Washington
DC
Detroit
Baltimore
Memphis
Chicago
0.0
Dallas
Murders per 100,000 population of city
50.0
4
A Criminal World – Banged Up
But some good news…
• https://www.ted.com/talks/steven_pi
nker_on_the_myth_of_violence?lan
guage=en
5
Criminal Economists – the Classical
Approach Vs Modern Day Approach
• Economists’ interest in crime is
longstanding (e.g. Beccaria,
Bentham, Paley and Smith, the
latter believing that, “the
establishment of commerce and
manufactures….is the best police
for preventing crimes”)
• Modern day approach to
economics of crime owes origins to
Gary Becker’s (1968) seminal
contribution the Journal of
Political Economy
Criminal Economists – The
Modern Day Approach
• Economists in recent years focus on:
6
– Rationalizing and modeling criminal
participation rates
– Identifying and measuring social costs of
crime
– Exploring appropriate and optimal choice of
punishment
– Assessing effectiveness of different law
enforcement agencies
– Evaluating feasibility of alternative crime
reduction strategies
7
Rationalizing and Modeling
Criminal Activity
• Becker’s approach assumes that potential
criminals respond rationally and consistently
to incentives
• An individual will commit a crime if the
benefits (expected utility) exceed benefits
from legitimate activity
• Becker claims that potential criminals will be
deterred by:
– (i) increases in probability of being caught and
punished
– (ii) increases in amount of punishment if caught
• Both (i) and (ii) reduce expected utility
8
Capital Punishment
• Ehrlich’s work in the 1970s on the deterrent
effect of capital punishment is probably the
most well-known and most controversial in
the literature
• In 1975 he examined US murder and
execution figures for the 1933 to 1969
period, together with measures of social
factors such as unemployment and per capita
income
9
Capital Punishment
• Ehrlich’s model revealed a negative relationship
between the murder rate and the execution rate
• In fact, Ehrlich suggested a “tradeoff between
executions and murders’, and estimated that over the
period studied, “an additional execution per
year…may have resulted, on 7 or 8 fewer murders”
• His findings generated a storm of controversy
concerning both his data and econometric method
10
Capital Punishment
• However, Rubin (1978) surveyed the
literature and explained that for research
concluding that there was no deterrent effect:
– “…many of these studies were anecdotal in
nature…But this kind of evidence cannot prove
anything. We need some sort of statistical study
to determine the true relationship. Many of the
earlier sociological studies were statistical, but
the statistics were not very sophisticated…The
kind of study done by Ehrlich…is able to
compensate for most differences that are thought
to be significant. The results of Ehrlich’s studies
are very strong in indicating a deterrent effect of
capital punishment”
11
Capital Punishment
• Economists kept exploring the issues
with increasingly sophisticated
statistical techniques
• The general result is additional
empirical support for most of
Ehrlich’s findings
12
Capital Punishment
• Levitt (2004) suggests caution in the
interpretation of these kinds of figures:
– The death penalty is used only sparingly and the
necessary legal process is often prolonged
• Therefore, the rational criminal is unlikely to be
deterred by the threat of execution
– Even if we accept these estimates, “the observed
increase in the death penalty from 14 executions
in 1991 to 66 in 2001 would eliminate between
300 and 400 homicides, for a reduction of 1.5
percent in the homicide rate, or less than onetwenty-fifth of the observed decline in the
homicide rate over this time period”
13
Capital Punishment
• Ehrlich and others found significant support
for the deterrence hypothesis, but it does not
follow that these economists advocate capital
punishment or severe criminal penalties
– The deterrence hypothesis is a positive
implication of economic theory that empirical tests
have generally supported
– Whether capital punishment is desirable or not is a
normative issue and the suggestion that it deters is
not the same as suggesting it should be used
– Ehrlich himself has argued that the best way to
reduce crime, including murder, is through the
creation of economic opportunities
15
The Ugly Face of Crime
• “I am too ugly
to get a job!”
• A Miami man’s
statement in
2003 as to why
he committed
robberies
17
The Ugly Face of Crime
– A large literature exists on the differences in
economic outcomes by individual characteristics
(race, gender, ethnicity, stature, and beauty)
– Hamermesh and Biddle (1994), Harper (2000) and
Hamermesh et al. (2002) demonstrate that
physically attractive workers earn sizeable
premiums for their looks
– Literature on sorting: movement of individuals
across different industries and sectors based upon
relative returns to some particular characteristic
that they possess
18
The Ugly Face of Crime
• In case of attractiveness: Biddle and
Hamermesh (1998) show that the premium to
attractiveness exists within narrowly-defined
occupations, and beauty induces individuals to
sort themselves into occupations where
attractiveness is rewarded.
•
Biddle, J. & Hamermesh, D. (1998), 'Beauty, Productivity, and Discrimination: Lawyers' Looks and
Lucre', Journal of Labor Economics 16(1), 172-201.
• Perisco et al. (2004) show that taller workers
receive a wage premium
•
Persico, N.; Postlewaite, A. & Silverman, D. (2004), 'The effect of adolescent experience on labor
market outcomes: The case of height', Journal of Political Economy 112(5), 1019--1053.
18
The Ugly Face of Crime
• Kuhn and Weinberger (2005) find that
leadership skills in high school affects wages
•
Kuhn, P. & Weinberger, C. (2005), 'Leadership Skills and Wages', Journal of Labor Economics 23(3),
395-436.
• These papers are important because they
underline the significance of non-cognitive
factors in pay determination
19 The Ugly Face of Crime
• If beauty commands a positive earnings
premium in the legal labor market, all
else being equal, sorting of less
attractive people into the illegal sector
may be expected
20
The Ugly Face of Crime
• UCD’s Naci
Mocan (left) has
been working on
a paper with
Erdel Tekin from
Georgia State
University
entitled, “Ugly
Criminals”
21
The Ugly Face of Crime
Primary goals of paper:
• (i) to investigate the extent of sorting between the
labor market and the criminal sector based on
physical attractiveness
• (ii) to investigate if pre-labor market beauty has an
independent effect on current criminal activity
• Also:
• (iii) to investigate if beauty has an impact on
wages and measures of human capital
development
• (iv) to investigate if attractive individuals are
treated more favorably by the criminal justice
system
22
The Ugly Face of Crime
• Analytical Framework
– Individuals engage in crime based on a
comparison of the expected utility from
criminal activity to the utility derived from
legal work
– Expected utility in the criminal sector is:
E[U(W)]= (1-p(B))U(Wcr)+p(B)U(Wa)
– Engage in crime if
(1-p(B))U(Wcr)-p(B)U(Wa) > U(Wl)
– where Wl stands for earnings in the legal
sector
23
The Ugly Face of Crime
• Wl = γB+βX,
• If γ>0 beauty has a wage premium, 
attractive individuals are more likely to sort
themselves into the labor market and
unattractive ones are more likely to sort
themselves into the criminal market
• However, beauty can also increase criminal
opportunities if good looks help build trust
=> dWcr/dB>0 (financial fraud)
• Good looks may also reduce the probability
of apprehension and conviction =>
dp(B)/dB<0 (e.g. Efran 1974)
• Then, the net impact of beauty on crime
would be ambiguous
24
The Ugly Face of Crime
• Empirical crime supply function:
CRi = f (Xi, A, Wl, Ki)
or
CRi = g (Xi, A, Bi, Ki)
X: Personal characteristics
B: indicator of beauty
A: deterrence
K: family and contextual variables
25
The Ugly Face of Crime
• Is there a second mechanism?
– Attractive students receive more attention from
teachers. Attractiveness influences perceptions
about intelligence. Attractive students are liked
better by peers, even by parents.
– Student names that signal lower socio-economic
status generate lower teacher
– Perhaps preferential treatment of better-looking
kids by teachers generates confidence and social
skills in these kids which lead to better
communication skills
CRi = h (Xi, A, Bi, Bihs, Ki)
26
The Ugly Face of Crime
Data for study
• Data come from the National Longitudinal
Survey of Adolescent Health (Add Health). It is
a large and nationally representative survey of
20,745 adolescents who were in grades 7 to 12
in 1994, with rich data on outcomes
• Largest and most comprehensive survey of
adolescents ever undertaken. These teens were
followed up in 1995 and again in 2001-2002
when they were 18 to 28 years old. Sample size
in Wave III is 15,197
27
The Ugly Face of Crime
• The respondents were asked whether they had
committed any of the following acts in the 12
months prior to the interview date: robbery,
burglary, assault, selling drugs, damaging
property, and theft
• At the end of each interview, the interviewer
filled out a short survey, where, among other
things, she/he rated the respondent’s physical
attractiveness.
• Question:
“How physically attractive is the respondent?”
Possible answers: 1. very unattractive, 2.
unattractive, 3. about average, 4. attractive, 5.
very attractive
29
The Ugly Face of Crime
Controls:
– Personal characteristics:
Age, race, ethnicity, non-wage income, health,
whether U.S. born, religious affiliation, birth
weight
– Socio-economic background characteristics:
Mother’s education, parents’ welfare receipt, family
income presence of a biological father, absent
father, step father, age of mother at birth, whether
father ever jailed
– Also, interviewer fixed effects
31
The Ugly Face of Crime
Questions:
Are ugly people being penalized just
because they are ugly?
or
Does ugliness jeopardize human capital
accumulation as well?
(through unfavorable treatment by
teachers, peers, etc.)
32
The Ugly Face of Crime
• Evidence suggests that attractive individuals
sort themselves into the legal labor market,
while unattractive individuals sort
themselves into the criminal market
• Results are more pronounced for females
than for males
• Beauty is associated with a wage premium,
while unattractiveness is associated with a
wage penalty
33
The Ugly Face of Crime
• For females, holding constant current beauty,
high school beauty (pre-labor market beauty)
has a separate impact on crime, and high
school beauty is correlated with variables that
gauge various aspects of high school
experience, such as GPA, suspension from
school, and problems with teachers. Thus,
high school beauty seems to acts as a proxy
for the extent and quality of human capital
formation in high school
34
The Ugly Face of Crime
• Taken together, these results suggest two
handicaps faced by unattractive individuals:
• (i) a labor market penalty provides a direct
incentive for unattractive individuals toward
criminal activity.
• (ii) Second, the level of beauty in high school
has an effect on criminal propensity 7-8
years later, which seems to be due to the
impact of beauty in high school on human
capital formation, although this second
avenue seems to be effective for females
only