Crime is an economic issue that results in a loss of resources for society. Individuals make rational choices between legal work and illegal activities based on their economic status and potential earnings. Measures to reduce crime from an economic perspective include maintaining full employment opportunities, an effective criminal justice system with a high likelihood of apprehension, and punishments that make illegal acts less attractive.

1. Economics of Crime Victoria Vernon, Ph.D. Empire State College

2. Examples of economic questions in this course: Are we getting our money’s worth for the dollars we spend on police, jails, and prisons? If crime is going down, why are we devoting more resources to its control? If drug offenders are mostly non-violent, why do we send them to state prison? Legalize drugs? Death penalty?

3. Outline for Today What is Economics? What is crime? Rational criminals How much crime is there? What is the economic impact of crime? Graphs Correlation vs causal link

4. What is Economics? Economics studies how people make CHOICES allocation of scarce resources among alternative uses how do we allocate SCARCE RESOURCES to satisfy the most pressing of our UNLIMITED WANTS? The science of decision-making INDIVIDUAL’S RESOURCES Money Time Effort SOCIETY’S RESOURCES Land Labor Capital Entrepreneurial abilities

5. How do we make choices? (Economics Philosophy) People are SELFISH Maximize our own joy, happiness UTILITY= subjective measure of joy, pleasure, happiness, satisfaction from consuming goods/services People are RATIONAL compare COSTS and BENEFITS of alternatives, Examples of decisions: Buying a cup of coffee Going to college Committing a crime People respond to incentives All choices involve OPPORTUNITY COSTS the next best alternative foregone

6. Rational decision example: Go to college? Benefits: higher future income: $100,000 lower insurance rates: $5,000 better health: $15,000 other ? Total benefits : $120,000 Benefits> Costs Costs: tuition, books: $40,000 lost income: $60,000 Total cost: $100,000

7. Rational decision example: Steel a car? Benefits (expected): Benefits > Costs ? Costs (expected):

8. choice Work and no violence Work and brawl in bars expect $ 24,000 /yr Apprehended: $ 22,000 lose 1 month in court and jail 0.1 0.9 Not apprehended $ 24,000 Expected income: 0.1*$22,000 + 0.9*$24,000 = $23,800 Expected cost: $200 Compare benefit and cost. Rational choice: brawl in bars?

9. What is Crime? Illegal activity. Motivation: self-interest, greed Street Crimes: robbery, burglary, auto theft, larceny White Collar: embezzlement, tax evasion, investment fraud, check fraud, telephone fraud, insider trading Status Offenses : runaway, truant, vagrant, beyond control of parents Black Market: gambling, prostitution, drugs Motivation: hate, rage Street Crimes: homicide, aggravated assault, rape Crimes Against Public Order : vandalism, terrorism Hate Crimes: Columbine High, dragging death

10. Crime? Selling/buying human organs Discrimination of minorities Collusive business agreements, monopolies Breach of contract Breaking Food and Drug Admin regulations Spam emails, hackers attacks File sharing Jaywalking Illegal parking Racial profiling

11. [ Serious violent crimes : rape, robbery, aggravated assault, and homicide Bureau of Justice Statistics, http://ojp.usdoj.gov/bjs/glance/cv2.htm

12. Property crimes: burglary, theft, motor vehicle theft.

13. Violent crimes : rape/sexual assault, robbery, aggravated and simple assault. Property crimes : household burglary, theft, and motor vehicle theft. Bureau of Justice Statistics, http://ojp.usdoj.gov/bjs/glance/reportingtype.htm

14. How is Crime Measured Victimization Surveys of Households U S Dept of Justice, Bureau of Justice Statistics, Criminal Victimization Citizen (Victim) Reports to Police U S Dept of Justice, FBI, Uniform Crime Reports

16. 2007: 7.3 million people were under correctional supervision including: Probation - court ordered community supervision of offenders by probation agency. Prison - confinement in a State or Federal facility to serve a sentence of >1 year. Jail - confinement in a local jail while pending trial, serving a sentence <1 year. Parole - community supervision after a period of incarceration.

19. February 28, 2008

26. Public Sector Health Safety Civics Education

27. Victim’s Income Thief’s Income Economic analysis of crime Crime as income redistribution Involuntary transfer from victim to thief

28. Victim’s Income Thief’s Income $6,000 $6,000 Income Distribution $12,000 Total or Social Income Line: Thief’s + Victim’s Income $12,000 Income Redistribution $9,000 $3,000 Crime is income redistribution Robin Hood: Take from the rich and give to the poor impact on social welfare: good or bad?

29. Victim’s Income Thief’s Income $6,000 $6,000 Income Distribution $12,000 Total or Social Income Line: Thief’s + Victim’s Income $12,000 Income Redistribution $9,000 $3,000 $11,000 $1,000 social cost of defense $11,000 Loss of resources spent on defense

30. What is the nature of crime? Crime is income redistribution Crime is a dead-weight loss for society Loss of resources spent on defense protection of homes, cars, bicycles These resources could be spent on goods and services Victim has less incentive to be productive The impact on social welfare Unambiguously bad Criminal does not take into account impact on society

31. Total Costs of Crime for Society Goods and services ( tangible ) Value of property destroyed Time and resources spent by criminal Medical /health services for victims Police and fire services Cost of jail time for taxpayers Loss of productivity and wages by victim Quality of life ( psychic ) by victim, family, friends Loss to bystanders, third parties and society ( negative externalities ) Cost of crime prevention activities: locks, guards, alarms, insurance, etc Spending on criminal justice system Taxes, property values, migration from neighborhoods Moral climate of society

32. Choice Legal work Illegal work Unemployed (fail) Employed (succeed) Apprehended (fail) Not Apprehended (succeed) Example of rational choice: Legal Work or Illegal Work?

33. Expected legal Income = 0.9*$12,000 = $10,800 Legal Work or Illegal Work? Choice with Uncertain Outcomes Choice Legal work Illegal work Unemployed (fail) Employed (succeed) Apprehended (fail) Not Apprehended (succeed) 0.1 0.9 $0 $12,000/yr 0.2 0.8 $0 $14,000/yr Expected illegal income = 0.8*$14,000 = $11,200

34. Expected legal Income = 0.95*$12,000 = $11,400 Choice Legal work Illegal work Unemployed (fail) Employed (succeed) Apprehended (fail) Not Apprehended (succeed) 0.1 0.9 $0 $12,000/yr 0.2 0.8 $0 $14,000/yr Expected illegal income = 0.8*$14,000 = $11,200 0.05 0.95 Reduce crime: Maintain a full-employment economy

35. Expected legal Income = 0.9*$12,000 = $10,800 Choice Legal work Illegal work Unemployed (fail) Employed (succeed) Apprehended (fail) Not Apprehended (succeed) 0.1 0.9 $0 $12,000/yr 0.2 0.8 $0 $14,000/yr Expected illegal income = 0.7*$14,000 = $9,800 0.3 0.7 Reduce crime: Maintain Effective Criminal Justice System keep the probability of apprehension high

36. Expected legal Income = 0.9*$12,000 = $10,800 Choice Legal work Illegal work Unemployed (fail) Employed (succeed) Apprehended (fail) Not Apprehended (succeed) 0.1 0.9 $0 $12,000/yr 0.2 0.8 -$3,000 (fine) $14,000/yr Expected illegal income = 0.8*$14,000 - 0.2*$3,000 = $10,600 $0 Reduce crime: Punish the criminal make crime less attractive

37. Summary Crime is an economic problem loss of resources(dead weight loss) from private and public defense Your economic status affects your probable behavior: work or crime Earning power affects your probable behavior Social Measures to Reduce Crime Maintain a full-employment economy Maintain an Effective Criminal Justice System keep the probability of apprehension high Punish the criminal make crime less attractive