Part F-I
The Economic Theory of Crime
and Punishment
A Model of Optimal Deterrence
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Objectives
- understand why a positive level of crime is
be optimal
- understand what causes the socially optimal
level of crime to increase and decrease
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Optimal Deterrence
- the social cost of crime
Social costs of crime include:
1. Direct harm to victim
Harm to society (perceived safety)
(security/insecurity) real vs imagined
2. Cost of deterrence
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Optimal Deterrence
Criminal harm to victims and society
Slope of the curve
- eliminate the most harmful crime first
$
- elimination of more and more crime yields
decreasing returns in terms of societal wellbeing
Shifts in curve
-
0%
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perceptions of the public
information flows
initial level of crime
???
100% reduction in crime
Reduction in Crime ->
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Optimal Deterrence
Costs of deterrence
Slope of the curve
- eliminate the least costly crime first
- dollars spent on elimination of crime yield
decreasing returns
$
Shifts in curve
- rights of accused and general
population
- productivity of the
criminal justice system
- technology
- social attitudes of public
- ??
0%
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100% reduction in crime
Reduction in Crime ->
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Optimal Deterrence
The intersection has no particular significance.
What we want to do is minimize the total cost of
crime (deterrence and harm taken together).
$
Cost of deterrence
Criminal harm
0%
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100% reduction in crime
Reduction in Crime ->
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Optimal Deterrence
Total social cost of crime
= Cost of deterrence + cost of criminal harm
$
Cost of deterrence
Optimal level of
enforcement (crime)
Criminal harm
0%
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100% reduction in crime
Reduction in Crime ->
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Optimal Deterrence
The usual optimizing conditions hold
The marginal cost of the last unit of
deterrence (last policeman hired, last judge
appointed, last jail built)
must equal
The marginal decrease in harm done to
victims and society (real or perceived?)
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Optimal Deterrence
The analysis can be extended naturally in two directions
1. Where is the marginal cost of deterrence smallest?
prevention, apprehension, conviction, punishment
What should the mix of deterrence be?
2. Where is the marginal decrease in harm done to victims
and society (real or perceived?) the greatest?
What types of crime should we focus on? What localities?
What victim groups?
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Private Deterrence Efforts
Both the public (government) and private individuals (and
corporations) can devote resources to deterring crime.
Public deterrence efforts: police, courts & judges, prisons, etc.
This is largely what we have been talking about – at least
the examples.
Private deterrence efforts: fences, alarms, security guards,
identification technology, guns, etc.
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Private Deterrence Efforts
Private deterrence efforts can have three types of effects
Private deterrence effect – protects the individual and/or
his/her property only
Public deterrence effect – protects the other individuals
and/or their property
Redistributive effect – simply relocates the crime to some
other individual and/or their
property
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Private Deterrence Efforts
The key questions is: to what extent does the private action
lower the lower the individual’s risk of becoming a victim as
opposed to lowering the overall crime rate?
Examples: Having a guard dog on my property – private
security in general
Property identification devices which make resale
difficult
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Private Deterrence Efforts
The extent of the ‘public effect’ generally hinges on whether or
not the private deterrence effort (precaution) is
ex ante observable - observable by the potential criminal
before the crime is committed
a bank guard at the door - open carry handgun laws
Or
ex post observable - observable by the potential criminal
only after the crime is committed
a red dye bomb that explodes after the robber leaves
the bank – concealed handguns
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Private Deterrence Efforts
If a private deterrence effort lowers the expected return from
criminal activity in general, then it will have a ‘public
deterrence effect’.
If a private deterrence effort does not lower the expected
return from criminal activity in general, then it will not have
a ‘public deterrence effect’ but only a ‘redistribution effect’
Private deterrence efforts should always have ‘private
deterrence effects’
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Private Deterrence Efforts
Governments should encourage private deterrence efforts if
they have a ‘public deterrence effect’.
Should governments discourage (ban) private deterrence
efforts if they have ‘redistribution effects’?
Contrast this policy situation with the ban on the ‘private
purchase healthcare’
I can hire a private security force (including off-duty Police) to
protect my person and property but I cannot hire a medical
doctor to provide me with private medical services. Why?
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Private Deterrence Efforts
Ex ante observable deterrence gives the potential criminal
information: Don’t try to harm me or my property – it is
protected
The potential criminal can simply move on to a victim who has
not invested in ex ante observable deterrence.
Ex ante observable deterrence allows for efficient sorting on
the part of the criminal.
Ex post observable deterrence introduces uncertainty: the
potential criminal knows that some potential victims have
invested in deterrence but does not know which ones - the
expected return from crime falls and the overall crime rate
falls.
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