Robert J. Stonebraker, Winthrop University
The Joy of
Economics: Making Sense out of Life
Robert J. Stonebraker, Winthrop
University
Crime: Costs and Benefits
Who knows what evil lurks in the minds of men?
...the Shadow
Presidents commit crimes; priests and pastors commit crimes. Why should you be any different? Why should I? I commit uncountable crimes; jaywalking is a particular favorite.
Economists treat crime as a rational act. Certainly some crime does result from unthinking, irrational behavior driven by blind rage or passion, but I make choices about jaywalking, and I am not alone. Perceived costs and benefits can trigger criminal acts just as they trigger decisions to buy vanilla rather than rocky road ice cream.
The benefits of committing a crime include a variety of monetary and psychic pleasures, but there are costs as well. Even in a world without laws, criminals incur opportunity costs for the time and energy devoted to their activity. The rational criminal will choose to pursue crime as long as its marginal benefit (MB) covers its marginal cost (MC); that's Q0 in the graph below.
Of course, the most important costs are external. The victims of crime pay a heavy price as does society at large. Crime burdens us all with the cost of police, prisons, courts, security devices and, perhaps worst of all, with fear. Because criminals largely ignore these costs to others, they produce inefficiently high amounts of crime. Should I steal $100 from you? If the MB of theft to me is $100 and I estimate my MC as $80; I'll steal. The theft creates $20 of net value for me. My $20 gain is more than offset by your $100 loss, however that does not necessarily enter my calculations. The thievery is not socially efficient, but my private gains outweigh my private costs.
Using the model
What should we do? The obvious choice is to shift the perceived costs and benefits of crime. That is precisely what the criminal justice system is designed to do. By imposing penalties we raise the MC of crime to its suppliers and decrease the equilibrium quantity.
More interestingly, if this economic view is correct, then differences in crime across time or across individuals should be directly attributable to differences in the costs and benefits of crime. After a steady rise during the 1970's and 1980's criminal activity fell significantly in the 1990's. This drop occurred in every category of crime in every part of the nation. According to economist Steven Levitt, shifts in costs and benefits tell much of the story.1
On the benefit or demand side Levitt finds that the strong economy of the 1990's explains a small, but significant part of the decline. Gainful employment can be considered a substitute for crime. If we flood the market with Pepsi, we lower the demand for Coke. Similarly, if we flood the market with jobs, we lower the demand for crime. As the economy grew and the job opportunities multiplied, potential criminals shifted from illegal to legal means of support.
However, changes on the supply or MC side of crime seem to have been more critical. First, there were significant increases in the number of police officers on the streets. While this was expensive, the benefits seem to have exceeded the costs by a wide margin.2 Second, we stuffed huge numbers of Americans into jails. The incarcerations impact crime both by removing potential criminals from the streets and by acting as a potential deterrent to others. By 2003 the U.S. led the world in terms of the percent of its population behind bars. We imprisoned 701 per 100,000 residents, followed by Russia at 603 per 100,000 residents. The U.S. rate is more than four times higher than the median rate across the world. As a comparison, the rate in Canada was 116 prisoners per 100,000 and rates in Western Europe ranged from 59 (Norway) to 141 (England).3
Although increases in police and imprisonment both matter, Levitt's research fingers increased police presence as being the more cost effective approach. He estimates that dollars spent on police protection create five times more bang for the buck than dollars spent on imprisonment. Given the current magnitude of the U.S. prison population, further increases may have little marginal impact.4
Levitt identifies another and far more controversial factor for decreased crime rates: legalized abortion. Citing evidence that unwanted children are more likely to commit crimes, he argues that legalized abortion has cut the number of unwanted children. The historical timing is what we should expect. Roe vs. Wade, the landmark case that led to increased abortion, was settled in 1973. If abortion cuts crime, the effect should begin to appear about 18 years later; this is exactly what happened. Moreover, differences in abortion rates across states correlate with differences in crime rates in subsequent years.5 Levitt does not tout abortion as a particularly efficient weapon against crime; he clearly prefers additional police officers for that. He merely notes that increased abortion accounts for a significant chunk of the slowdown in criminal activity.
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Notes:
1. For an overview of his work, see Levitt, Steven D., "Understanding Why Crime Fell in the 1990's," Journal of Economic Perspectives, Winter 2004, volume 18, number 1, pp. 163-190.
2. Ibid., page 177.
3. See Walmsley, Roy, "World Prison Population List," 5th edition, UK Home Office, http://www.homeoffice.gov.uk/rds/pdfs2/r234.pdf.
4. Levitt, op. cit., p. 179.
5. Ibid., pp. 181-183.
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Testing Yourself
To test your understanding of the major concepts in this reading, try answering the following:
1. Describe the benefits and costs of crime; explain why in a world without laws individuals will create more crime than is socially efficient.
2. Identify four reasons identified by Steven Levitt for why U.S. crime rates fell in the 1990's and explain each one.