Crime1

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Crime1

  1. 1. Economics of Crime Victoria Vernon, Ph.D. Empire State College
  2. 2. Examples of economic questions in this course: <ul><li>Are we getting our money’s worth for the dollars we spend on police, jails, and prisons? </li></ul><ul><li>If crime is going down, why are we devoting more resources to its control? </li></ul><ul><li>If drug offenders are mostly non-violent, why do we send them to state prison? </li></ul><ul><li>Legalize drugs? </li></ul><ul><li>Death penalty? </li></ul>
  3. 3. Outline for Today <ul><li>What is Economics? </li></ul><ul><li>What is crime? </li></ul><ul><li>Rational criminals </li></ul><ul><li>How much crime is there? </li></ul><ul><li>What is the economic impact of crime? </li></ul><ul><li>Graphs </li></ul><ul><li>Correlation vs causal link </li></ul>
  4. 4. What is Economics? <ul><li>Economics studies </li></ul><ul><li>how people make CHOICES </li></ul><ul><li>allocation of scarce resources among alternative uses </li></ul><ul><li>how do we allocate SCARCE RESOURCES to satisfy the most pressing of our UNLIMITED WANTS? </li></ul><ul><li>The science of decision-making </li></ul><ul><li>INDIVIDUAL’S RESOURCES </li></ul><ul><ul><li>Money </li></ul></ul><ul><ul><li>Time </li></ul></ul><ul><ul><li>Effort </li></ul></ul><ul><li>SOCIETY’S RESOURCES </li></ul><ul><ul><li>Land </li></ul></ul><ul><ul><li>Labor </li></ul></ul><ul><ul><li>Capital </li></ul></ul><ul><ul><li>Entrepreneurial abilities </li></ul></ul>
  5. 5. How do we make choices? (Economics Philosophy) <ul><li>People are SELFISH </li></ul><ul><ul><li>Maximize our own joy, happiness </li></ul></ul><ul><ul><li>UTILITY= </li></ul></ul><ul><li>subjective measure of joy, pleasure, happiness, satisfaction from consuming goods/services </li></ul><ul><li>People are RATIONAL </li></ul><ul><ul><li>compare COSTS and BENEFITS of alternatives, </li></ul></ul><ul><ul><li>Examples of decisions: </li></ul></ul><ul><ul><li>Buying a cup of coffee </li></ul></ul><ul><ul><li>Going to college </li></ul></ul><ul><ul><li>Committing a crime </li></ul></ul><ul><li>People respond to incentives </li></ul><ul><li>All choices involve OPPORTUNITY COSTS </li></ul><ul><ul><li>the next best alternative foregone </li></ul></ul>
  6. 6. Rational decision example: Go to college? <ul><li>Benefits: </li></ul><ul><ul><li>higher future income: $100,000 </li></ul></ul><ul><ul><li>lower insurance rates: $5,000 </li></ul></ul><ul><ul><li>better health: $15,000 </li></ul></ul><ul><ul><li>other ? </li></ul></ul><ul><ul><li>Total benefits : $120,000 </li></ul></ul><ul><ul><li>Benefits> Costs </li></ul></ul><ul><li>Costs: </li></ul><ul><ul><li>tuition, books: $40,000 </li></ul></ul><ul><ul><li>lost income: $60,000 </li></ul></ul><ul><ul><li>Total cost: $100,000 </li></ul></ul>
  7. 7. Rational decision example: Steel a car? <ul><li>Benefits (expected): </li></ul><ul><ul><li>Benefits > Costs ? </li></ul></ul><ul><li>Costs (expected): </li></ul>
  8. 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. 9. What is Crime? Illegal activity. <ul><li>Motivation: self-interest, greed </li></ul><ul><ul><li>Street Crimes: robbery, burglary, auto theft, larceny </li></ul></ul><ul><ul><li>White Collar: embezzlement, tax evasion, investment fraud, check fraud, telephone fraud, insider trading </li></ul></ul><ul><ul><li>Status Offenses : runaway, truant, vagrant, beyond control of parents </li></ul></ul><ul><ul><li>Black Market: gambling, prostitution, drugs </li></ul></ul><ul><li>Motivation: hate, rage </li></ul><ul><ul><li>Street Crimes: homicide, aggravated assault, rape </li></ul></ul><ul><ul><li>Crimes Against Public Order : vandalism, terrorism </li></ul></ul><ul><ul><li>Hate Crimes: Columbine High, dragging death </li></ul></ul>
  10. 10. Crime? <ul><li>Selling/buying human organs </li></ul><ul><li>Discrimination of minorities </li></ul><ul><li>Collusive business agreements, monopolies </li></ul><ul><li>Breach of contract </li></ul><ul><li>Breaking Food and Drug Admin regulations </li></ul><ul><li>Spam emails, hackers attacks </li></ul><ul><li>File sharing </li></ul><ul><li>Jaywalking </li></ul><ul><li>Illegal parking </li></ul><ul><li>Racial profiling </li></ul>
  11. 11.                                                          [ Serious violent crimes : rape, robbery, aggravated assault, and homicide Bureau of Justice Statistics, http://ojp.usdoj.gov/bjs/glance/cv2.htm
  12. 12. <ul><li>Property crimes: </li></ul><ul><li>burglary, theft, motor vehicle theft. </li></ul>
  13. 13. <ul><li>Violent crimes : rape/sexual assault, robbery, aggravated and simple assault. </li></ul><ul><li>Property crimes : household burglary, theft, and motor vehicle theft. </li></ul><ul><li>Bureau of Justice Statistics, http://ojp.usdoj.gov/bjs/glance/reportingtype.htm </li></ul>
  14. 14. How is Crime Measured <ul><li>Victimization Surveys of Households </li></ul><ul><ul><li>U S Dept of Justice, Bureau of Justice Statistics, Criminal Victimization </li></ul></ul><ul><li>Citizen (Victim) Reports to Police </li></ul><ul><ul><li>U S Dept of Justice, FBI, Uniform Crime Reports </li></ul></ul>
  15. 16. <ul><li>2007: 7.3 million people were under correctional supervision including: </li></ul><ul><li>Probation - court ordered community supervision of offenders by probation agency. </li></ul><ul><li>Prison - confinement in a State or Federal facility to serve a sentence of >1 year. </li></ul><ul><li>Jail - confinement in a local jail while pending trial, serving a sentence <1 year. </li></ul><ul><li>Parole - community supervision after a period of incarceration. </li></ul>
  16. 19. February 28, 2008     
  17. 26. Public Sector Health Safety Civics Education
  18. 27. Victim’s Income Thief’s Income <ul><li>Economic analysis of crime </li></ul><ul><li>Crime as income redistribution </li></ul><ul><ul><li>Involuntary transfer from victim to thief </li></ul></ul>
  19. 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 <ul><li>Crime is income redistribution </li></ul><ul><ul><li>Robin Hood: Take from the rich and give to the poor </li></ul></ul><ul><ul><li>impact on social welfare: good or bad? </li></ul></ul>
  20. 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 <ul><ul><li>Loss of resources spent on defense </li></ul></ul>
  21. 30. What is the nature of crime? <ul><li>Crime is income redistribution </li></ul><ul><li>Crime is a dead-weight loss for society </li></ul><ul><ul><li>Loss of resources spent on defense </li></ul></ul><ul><ul><ul><li>protection of homes, cars, bicycles </li></ul></ul></ul><ul><ul><li>These resources could be spent on goods and services </li></ul></ul><ul><ul><li>Victim has less incentive to be productive </li></ul></ul><ul><ul><li>The impact on social welfare </li></ul></ul><ul><ul><ul><li>Unambiguously bad </li></ul></ul></ul><ul><li>Criminal does not take into account impact on society </li></ul>
  22. 31. Total Costs of Crime for Society <ul><li>Goods and services ( tangible ) </li></ul><ul><ul><li>Value of property destroyed </li></ul></ul><ul><ul><li>Time and resources spent by criminal </li></ul></ul><ul><ul><li>Medical /health services for victims </li></ul></ul><ul><ul><li>Police and fire services </li></ul></ul><ul><ul><li>Cost of jail time for taxpayers </li></ul></ul><ul><ul><li>Loss of productivity and wages by victim </li></ul></ul><ul><ul><li>Quality of life ( psychic ) by victim, family, friends </li></ul></ul><ul><ul><li>Loss to bystanders, third parties and society ( negative externalities ) </li></ul></ul><ul><ul><li>Cost of crime prevention activities: locks, guards, alarms, insurance, etc </li></ul></ul><ul><ul><li>Spending on criminal justice system </li></ul></ul><ul><ul><li>Taxes, property values, migration from neighborhoods </li></ul></ul><ul><ul><li>Moral climate of society </li></ul></ul>
  23. 32. Choice Legal work Illegal work Unemployed (fail) Employed (succeed) Apprehended (fail) Not Apprehended (succeed) Example of rational choice: Legal Work or Illegal Work?
  24. 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
  25. 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
  26. 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 <ul><li>Reduce crime: Maintain Effective Criminal Justice System </li></ul><ul><ul><li>keep the probability of apprehension high </li></ul></ul>
  27. 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 <ul><li>Reduce crime: Punish the criminal </li></ul><ul><ul><li>make crime less attractive </li></ul></ul>
  28. 37. Summary <ul><li>Crime is an economic problem </li></ul><ul><ul><li>loss of resources(dead weight loss) from private and public defense </li></ul></ul><ul><li>Your economic status affects your probable behavior: work or crime </li></ul><ul><li>Earning power affects your probable behavior </li></ul><ul><li>Social Measures to Reduce Crime </li></ul><ul><ul><li>Maintain a full-employment economy </li></ul></ul><ul><ul><li>Maintain an Effective Criminal Justice System </li></ul></ul><ul><ul><ul><li>keep the probability of apprehension high </li></ul></ul></ul><ul><ul><li>Punish the criminal </li></ul></ul><ul><ul><ul><li>make crime less attractive </li></ul></ul></ul>

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