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Economics of Safety and
Security Lecture notes + Reading
summaries Week 1-7
This is a summary of all the readings and lectures throughout week 1-7.
The structure of a week is as follows:
Week number:
Readings for a lecture
Lecture notes
Etc.
Good luck on the final!! :]
Economics of Safety and Security Lecture notes + Reading summaries Week 1-7 1
, Economics of Safety and
Security Lecture notes + Reading
summaries Week 1-7
Week 1
Becker, G. (1992, December 9). The
Economic Way of Looking at Life. Nobel
Prize. Pages 41-43
Crime and Punishment
In the 1950s and 1960s intellectual discussions of crime were dominated by the opinion
that criminal behavior was caused by mental illness and social oppression, and
that criminals were helpless “victims.”
Such attitudes began to exert a major influence on social policy, as laws changed to
expand criminals’ rights. These changes reduced the apprehension and conviction
of criminals, and provided less protection to the law-abiding population.
I explored instead the theoretical and empirical implications of the assumption that
criminal behavior is rational.
It recognized that many people are constrained by moral and ethical
considerations, and did not commit crimes even when they were profitable and
there was no danger of detection.
Rationality implied that some individuals become criminals because of the financial
rewards from crime compared to legal work, taking account of the likelihood of
apprehension and conviction, and the severity of punishment.
Economics of Safety and Security Lecture notes + Reading summaries Week 1-7 1
, The amount of crime is determined not only by the rationality and preferences of would-
be criminals, but also by the economic and social environment created by public
policies.
Optimal behavior by the State would balance the reduced spending on police and
courts from lowering the probability of conviction against the preference of risk-
preferring criminals for a lesser certainty of punishment.
The time criminals spend on weapons and planning and carrying out their crimes, is
socially unproductive - it is what is now called “rent-seeking” - because it does not
create wealth, only forcibly redistributes it.
Studies of crime that use the economic approach have become common during the
past quarter century.
These include analysis of the optimal marginal punishments to deter increases
in the severity of crimes.
Cooter, R. & Ulen, T. (2016). Law &
Economics (6th ed.). Addison-Wesley.
Chapter 12, pages 460-480.
Chapter 12: An Economic Theory of Crime
and Punishment
The economic theory of crime offers:
Reasons for the characteristics of a crime.
Distinguishes criminal prosecutions from civil disputes.
Offers a predictive model of criminal behavior.
Proposes a clear goal for criminal law.
Economics of Safety and Security Lecture notes + Reading summaries Week 1-7 2
, Inadequacy of Tort Law, Necessity of Criminal Law
Tort law achieves efficient incentives by making injurers—and, in some cases, victims—
internalize the cost of accidents.
Most crimes are also torts, which means that most criminals are vulnerable to civil
suits.
For several reasons, however, civil suits cannot internalize the costs of crimes:
1. Perfect compensation may be impossible
Compensation is perfect when potential victims are indifferent about accidents
in the sense that they would just as soon have the injury and the damages as
have no injury and no damages. The concept of indifference is difficult to
apply to crimes like assault. Consequently, the relevant law cannot take as its
goal the perfect compensation of victims and the internalization of costs by
injurers.
Criminal punishment aims to deter intentional harms, not to compensate for
them. The state prohibits people from intentionally harming others and backs
this prohibition by punishment. Thus, criminal law is a necessary supplement to
tort law when perfect compensation is impossible.
2. The law may seek to protect the rights of potential victims rather than their
interests
Protecting rights secures liberty and society is, in general, better off when goods
are acquired through voluntary exchange.
3. Punishment is often necessary for deterrence
In order to deter criminals, the law must impose enough punishment so that the
expected net benefit of crime to the criminal is negative.
When deterrence is the goal, actors are not free to pay the price and do as they
please. Instead, punishments are calibrated to deter those actors who prefer to
do the act in spite of its price.
Economics of Safety and Security Lecture notes + Reading summaries Week 1-7 3
, Acts should be punished when the aim is deterrence, whereas acts should be
priced when the aim is internalization.
The law should aim for deterrence when perfect compensation is impossible in
principle or in practice, when people want law to protect their rights instead of their
interests, or when enforcement errors systematically undermine liability.
Rational Crime
By a “rational, amoral person,” we mean someone who carefully determines the
means to achieve illegal ends, without restraint by guilt or internalized morality.
Crimes can be ranked by seriousness and punishment can be ranked by severity.
Punishment is probabilistic, not certain. Therefore, a rational decision maker takes
the probability of punishment into account when contemplating the commission of
any crime.
Efforts to detect, prosecute, and convict criminals normally increase with the crime’s
seriousness.
More certain and severe punishment reduces the seriousness of crime.
Applying the Model of Rational Crime to Public Policy
Aggregate crime responds to punishment just like the response of the underlying
individuals.
An increase in the marginal probability or seriousness of punishment causes
a decrease in the aggregate number of crimes.
When the expected punishment rises, some criminals commit fewer crimes and other
criminals stop committing them.
The proposition that an increase in expected punishment causes a decrease in
crimes is the “First Law of Deterrence.”
Economics of Safety and Security Lecture notes + Reading summaries Week 1-7 4
, The interesting question for economists is not whether people commit less crime when
the expected punishment increases. Rather, the interesting question is “How much do
crime rates respond to increases in expected punishment?”
In other words, the interesting question concerns the elasticity of the supply of
crime.
When the supply of crime is elastic, policymakers can reduce crime significantly by
moderate increases in expected punishment.
When the supply of crime is inelastic, however, the variables encompassed by the
economic model of rational crime are less important than other variables, such as
employment rates, family configuration, drug addiction, quality of schooling, and so
on.
We have explained how the rational, amoral criminal responds to changes in a few
variables:
1. The probability of punishment
2. The severity of punishment
3. The opportunities to commit crimes
However, keep in mind that simplifying assumptions are used here.
Criminal Behavior and Criminal Intent
In economical models, criminals are said to act as if they were comparing marginal
benefits of crime and expected punishments.
The commission of most crimes, however, requires criminal intent. To commit
crimes, it is not enough for people to act as if they had criminal intent. They must
actually have it.
So, criminal law concerns reasons, not just behavior.
Criminal intent is often distinguished according to the level of deliberation.
Economics of Safety and Security Lecture notes + Reading summaries Week 1-7 5
, A premeditated crime shows a greater degree of deliberation than a spontaneous
crime.
The economic model of choice describes the deliberation of rational criminals
when their crimes are premeditated, and rational criminals can behave as if
guided by the economic model when they commit spontaneous crimes.
If this assertion is true, empirical investigations should demonstrate that crime rates
respond in the predicted manner to punishments and payoffs.
Diminished Rationality - Saturday Night Fever
The economic theory of behavior begins with super-rationality, but it need not end there.
Many crimes and torts occur under conditions of diminished rationality. For
example, many crimes result from lapses, which are temporary aberrations in
behavior.
Young people often commit crimes when they temporarily lose control of their emotions
and act impulsively.
We call this behavior “Saturday Night Fever.”
Prudence involves giving reasonable weight to future events, whereas imprudence
involves giving unreasonably little weight to future events.
Occasional imprudence is a kind of lapse in which the actor temporarily
discounts the future consequences of his or her behavior at a much higher level
than ordinarily would be the case.
Insofar as imprudent lapses cause crime, more severe punishment is not a very
effective deterrent.
Severity is ineffective because the cause of crime is unreasonable discounting of
future punishment and increasing the punishment’s severity gets discounted too
much to have a large effect on behavior.
Economics of Safety and Security Lecture notes + Reading summaries Week 1-7 6
, Alternatively, increasing the certainty and immediacy of punishment may be more
effective for deterring crime.
Certainty of punishment is relatively important for impulsive youths, and severity is
relatively important for deliberative adults.
Another finding is that people are more consistent about their trade-offs between
two future choices than between a present and future choice.
When people discount the future unreasonably, the immediate gain from doing
something wrong attracts them more strongly than the threat of a future
punishment.
Increasing the severity of the future sanction has little effect on their behavior
because the future has little effect on their behavior
Unreasonable discounting of the future, whether probabilistic or systematic, is a form
of diminished rationality that afflicts many people.
When rationality diminishes too far, a person becomes insane. An insane person is
legally incapable of committing a crime and cannot be punished legally.
The Economic Goal of Criminal Law
Crime imposes various costs on society, which we reduce to two basic kinds:
1. Social harm
The criminals gain something, and the victims suffer harm to their persons or
property. The resulting social harm, according to the standard view among
economists, equals the net loss in value.
F.e. if a thief shatters a car window costing $100 and steals a radio worth $75,
then the criminal gains $75 and the victim loses $175, for a net social loss of
$100.
2. Preventive resources
Economics of Safety and Security Lecture notes + Reading summaries Week 1-7 7
, The state and the potential victims of crime expend resources to protect against
it.
Criminal law should minimize the social cost of crime, which equals the sum of the
harm it causes and the costs of preventing it.
Criminal activities divert the efforts of criminals from legal to illegal activities, which
imposes an opportunity cost.
For example, an accountant who devotes herself to embezzling funds has less time
for legitimate bookkeeping
Optimal Amount of Crime Deterrence and of Efficient
Punishment
Socially optimal deterrence occurs at the point where the marginal social cost of
reducing crime further equals the marginal social benefit.
As long as deterrence is costly, the optimal amount of crime is positive. Costly
deterrence precludes a rational society from entirely eliminating crime. If deterrence
costs rise, the optimal amount of crime rises.
If, however, the net harm from crime rises, the optimal amount of crime falls.
Mathematics of Optimal Means of Deterrence
Having shown how to determine the optimum amount of deterrence, we next turn to an
analysis of the optimal means of deterring crime.
First, consider a choice between allocating resources to make punishment more
certain or more severe.
A higher probability of punishment requires more expenditures on police and
prosecutors, whereas a large fine costs not much more to collect than a small fine.
Because certainty of punishment is costly for the state to achieve relative to
severity of punishment by a fine, large fines with low probability are typically more
efficient than low fines with high probability.
Economics of Safety and Security Lecture notes + Reading summaries Week 1-7 8
, However, many criminals are too poor to pay a fine commensurate with the seriousness
of their crimes. So they require punishment by incarceration.
However, fines are cheap for the state to collect and incarceration is very
expensive. This fact prompts policymakers to look for ways to increase the capacity
of criminals to pay fines.
Private Deterrence
Private individuals, not public officials, deter much crime.
But private citizens do not have incentives to invest optimally in deterring crime, as
they are mostly concerned with private costs and benefits, which do not necessarily
align with public costs and benefits.
Installing a new lock on your door has private value for the private investor if it prevents
the burglary of their house.
This effect is private deterrence, because it benefits the private investor in
precaution.
Installing the lock has public value for their neighbors if burglars tend to avoid
neighborhoods in which some houses have brand X double-bolt locks.
This effect is public deterrence because it benefits the public.
Installing the lock has little social value if it prevents the burglary of the private investor’s
house by causing a burglar to rob the house next door.
This effect is redistributing crime, this has no net social benefit.
So, private investment in preventing crime usually has all three effects:
1. Private deterrence
Economics of Safety and Security Lecture notes + Reading summaries Week 1-7 9
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