MARIE RODLENE G.

MALLEN MABA, 2 nd SEMESTER

2021

Seminar on Current Economics Problem Position Paper No. 3

CRIME PREVENTION AND ECONOMIC ANALYSIS

The scarcity of resources pushed the government to make proper decisions as to

how to allocate them. In the context of crime prevention, which generally consists of any
preemptive interventions intended to stop or put to a minimum the likelihood of the
occurrence of a criminal act at a given location, an economic analysis is used to
compare how well various alternatives meet a given set of objectives under certain
assumptions and constraints.

Some resources could be spent on police patrol, efforts at detection, fostering

neighborhood watch or efforts to catch people speeding, and other acts to prevent crime
to happen. The key question is always that of determining how and where we can get
more benefits and lesser costs for the same or less investment. This paper provides a
general overview as to the basic concepts of the economics of crime prevention and the
differences or gaps that are observable between the costs and benefits of large cities
versus small towns in terms of committing and preventing crimes.

I. INTRODUCTION

A crime is an illegal act or action. It can cause significant social and economic
problems to individuals and communities. People may become frightened inside or
outside their own home, home insurance premiums can rise, property prices are
affected, homeowners can find it more difficult to sell their property, new businesses
may avoid the area, and existing businesses may even shut down. But preventing crime
can be expensive and can stretch budgets.

In order to understand how to effectively prevent and respond to crimes, we first

need to understand the cost and benefits of crime. The typical way economists
approach crime is to treat it as a rational, logical decision. In general, comparing costs
and benefits is referred to as cost-benefit analysis. When the benefits exceed the costs,
individuals commit a crime. The costs would depend on the chances or probability of
getting caught and the consequences of getting caught—the punishment in terms of jail
time or a fine. Economic analysis of crime can also be extended to understanding why
people or groups may commit acts of terror.

II. HOW SHOULD A CITY DECIDE ON THE OPTIMAL LEVEL OF CRIME

PREVENTION TO PROVIDE?

Economists have devised a range of techniques to assess the returns on

resource usage in the private, public and voluntary sector. The determination of the
optimal level of prevention is carried out based on a mathematically formulated social
loss function. It shows that by optimal choice of the deterrence parameters, i.e., in
particular probability of getting arrested or convicted and the expected strengths of the
penalty, social damage can be minimized efficiently. Efficient so, because crime
prevention not only reduces the damage, but also incurs costs. By using economic
analysis, the government can decide on the optimal level of crime prevention to provide
through making informed, evidence-based choices that will yield the best return. The
following are the four main methods of economic analysis:

 Cost-Savings Analysis (CSA) examines whether a program’s or policy’s

funding is self-sustainable by assessing its costs and potential savings. One
drawback of CSA is the difficultly in placing monetary values on some types of
benefit, such as quality of life and feelings of safety. It is crucial to be explicit
about who exactly gains from any savings identified (e.g., the individual or the
criminal justice system). Otherwise, the results may be misinterpreted as
estimates of savings to society as a whole, even though they may speak only to
organizational costs and potential savings.

 Cost-Effectiveness Analysis (CEA) assesses the cost of delivering a particular

output or impact on crime. For example, the number of “treatments” applied, the
 number of custodial sentences increased or reduced, or the number of crimes
prevented could be estimated and the cost for each gauged.

 Cost-Utility Analysis (CUA) compares programs in terms of their costs and

perceived utility. ‘Utility’, in this context, refers to the satisfaction an individual
obtains from one or more outcomes. This might include improvements in their
perceptions of personal safety or quality of life. Because such utilities are difficult
to measure in monetary terms, alternative indicators have been developed.
Quality-Adjusted Life Years (QALYs) are frequently used in health evaluations.
They comprise a standardized measurement of the extent to which an
intervention is perceived to affect a person’s quality and quantity of life (Gold,
Siegel, Russell, & Weinstein, 1996).

 Cost-Benefit Analysis (CBA) calculates the overall costs and benefits

associated with a given program or policy. This is achieved by monetizing all
possible costs and benefits, whether these be financial or otherwise. In principle
CBA can be used to gauge which programs represent the best overall value,
expressed in monetary terms. CBA is useful when more than one outcome is
considered essential in the analysis, or if the natural outcomes of the
interventions being examined are dissimilar (for example crimes prevented,
health improved, lives saved and achievements in education, although the
individual decision maker such as yourself will rarely if ever have to deal with so
bewildering an array of outcomes).

Among the four methods, Cost-Benefit Analysis comprise the most

comprehensive analysis of alternatives with respect to potential outputs. It offers an
evidence base for making comparisons between some fixed and specified number of
alternatives including the pre-intervention status quo amongst which a practitioner might
wish to choose.

III. COST-BENEFIT ANALYSIS

 There are six main steps that have been identified for the successful completion
of an economic analysis acc (Barnett 1993) which are applied to CBA. These include
the following steps:

 defining the scope of the analysis

 obtaining estimates of program effects
 quantifying the monetary costs and benefits
 calculation of present value and assessment of profitability
 identification of the distribution of costs and benefits
 testing the riskiness of the conclusions via a sensitivity analysis

IV. ASSESSMENT OF THE PROGRAM IMPACT (BENEFIT)

The prevention program’s impact has to be estimated in relation to the situation

that would have occurred in the absence of the program. For a meaningful evaluation of
the program impact, the outcome of interest should be clearly defined. This variable
should be based on the program objectives and it has to operationalize the purposes
and targets of the intervention quantitatively. Since every individual situation can be
observed at the same time only once, and thus only in a particular state, the difference
between the outcome of the program (treatment) and the outcome without program
(control) cannot be observed. In order to solve this problem and to estimate the effect of
the program, the so-called social experiments were suggested. They randomly assign
the observation objects into a treatment group and a control group, comparable to a
laboratory experiment. They reproduce the experimental situation under certain
assumptions and by use of statistical or econometric methods.

V. ASSESSMENT OF COSTS

The estimation and assignment of monetary values to program benefits, is the

most difficult within a cost-benefit analysis. It should be noted that costs and benefits
have an inverse relationship: the costs of crime correspond to the benefits to society
caused by preventing or reducing the crime. To ensure a correct assignment of benefits,
those who bear the costs of crime have to be identified accordingly. In addition, both the
tangible as well as the intangible costs have to be taken into account.

The total program cost relies on a technique known as cost analysis to determine
the sum of all financial inputs to the crime prevention program in terms of administrative
costs, capital costs and indirect costs. Administrative costs include staff salaries,
benefits, and training activities. Capital costs include purchase or rental of office space,
equipment, and supplies, insurance, vehicles, transportation, costs attributable to clients
such as books, training, and assessment materials, “in-kind” costs, e.g., office space
provided by a hosting agency which runs several programs, etc. Indirect costs include
administrative and client service volunteers (whose costs could come out of their own
pockets or be contributed by a partnering or sponsoring agency) Hornick, Paetsch &
Bertrand, 2000; Kerr, 2001.

VI. EXAMPLE OF COST-BENEFIT ANALYSIS

In 2010, Yeh employed CBA in relation to home detention and electronic

monitoring, which involves the use of ankle bracelets to track parolees and
probationers. Conventionally violent offenders must serve a minimum of 85% of their
sentence in prison, while nonviolent offenders must serve a minimum of 67%. Based on
results from Padgett, Bales and Blomberg’s (2006) study, Yeh estimates that EM deters
94.7% of crimes that would otherwise be committed by parolees. Using data from a
national survey of state prison inmates, Yeh (2010) calculates the costs and benefits of
the averted crimes that the analysis suggested would be committed by parolees over
the course of one year in the absence of the new policy (50/50 policy). To ensure that
the estimated costs were comparable, analyses were conducted assuming that the
intervention was implemented in the year 2008. The analysis suggested that
approximately 781,383 crimes would be prevented by the intervention and that the
social value of this annual reduction in crime would be US$481.1 billion. Meanwhile, the
annual cost of monitoring all parolees and probationers in 2008 would be approximately
US$37.9 billion. According to these estimates, the monetized benefits would thus be
12.7 times (US$481.1/US$37.9) the costs of implementation. This cost-benefit ratio of
12.70 suggests that society would gain US$12.70 for every dollar expended on the
proposed program. Yeh thus concludes that EM and home detention could be an
effective policy to reduce crime and produce large social benefits. Such a cost-benefit
ratio can, of course, be compared to other CBA ratios for other interventions to
determine which provides the most “bang for the buck”.

VII. DIFFERENCES IN COSTS AND BENEFITS BETWEEN LARGE CITIES AND

SMALL TOWNS

The number of criminal activities in large cities are far bigger in size compared to
small towns. Urban density may play a particular role in these crimes and unplanned
petty larceny. There are more people in the cities and houses are situated side-by-side
resulting to a much larger stream of potential victims. Physical proximity and the high
frequency of interactions between criminals and potential victims make it plausible that
these criminals will be able to learn about where, when, how and who to initiate with
their crime. Thus, criminals in these cities will be able to choose the most lucrative crime
among a greater range of crimes. Given that crime costs may differ substantially
between different settings, and that local and national projections of costs may be
disparate, potential crime savings to be realized from crime aversion/reduction
strategies may vary accordingly. As a result, there will be more police stationed at these
locations compared to towns that have small crime rate.

VIII. CONCLUSION

To date, the application of cost-benefit analysis to crime prevention has been

limited. However, given its importance as a guide for financial accountability, its
application is likely to increase. There are a number of suggestions regarding this
increased future application that should be made. To ensure accountability on behalf of
those program practitioners who use benefit-cost analysis, it is imperative that the
results from any benefit-cost analysis be fully transparent. By this, it is meant that all
results should be able to be subjected to ex-post examination to check their validity.
Given the important role that the underlying program evaluation plays in carrying out
benefit-cost analysis, it is also recommended that some sort of combined scale for
ranking alternative crime prevention programs should be developed. Possible
components of this scale would include the benefit-cost ratio itself, together with specific
information about the program, including sample size, attrition rates, follow-up period
and, most importantly, the type of experimental research design that was used to
determine the effectiveness of the program. Even when all these factors are taken into
account, it still remains important to scrutinize the implementation process of a crime
prevention program.

In the first instance, it can be used to show a future commitment towards

accountability. For those in power, it can be used to justify expenditure on various forms
of crime prevention. Governments who have funded various long-term crime prevention
programs in previous terms of office can also point to benefit-cost analysis to show the
public that it was money well spent. The bottom line is that for something as important
and costly as crime, all types of governments should be guided by the long-term social
costs and benefits of alternative crime prevention programs.

IX. REFERENCES
 Edward L. Glaeser & Bruce Sacerdote, 1996. "Why Is There More Crime in
Cities?," NBER Working Papers 5430, National Bureau of Economic Research,
Inc
 Manning M., Johnson S.D., Tilley N., Wong G.T.W., Vorsina M. (2016) Cost-
Benefit Analysis (CBA). In: Economic Analysis and Efficiency in Policing,
Criminal Justice and Crime Reduction: What Works?. Palgrave Macmillan,
London. https://doi.org/10.1057/9781137588654_5
 Manning M., Johnson S.D., Tilley N., Wong G.T.W., Vorsina M. (2016) EA
Techniques. In: Economic Analysis and Efficiency in Policing, Criminal Justice
and Crime Reduction: What Works?. Palgrave Macmillan, London.
https://doi.org/10.1057/9781137588654_4