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Crime and Punishment-An Economic Approach by Gary Becker
Crime and Punishment-An Economic Approach by Gary Becker
Crime and Punishment-An Economic Approach by Gary Becker
Gary S. Becker
University of Chicago and National Bureau of Economic Research
1. INTRODUCTION
Since the turn of the century, legislation in Western countries has ex-
panded rapidly to reverse the brief dominance of laissez faire during the
nineteenth century. The state no longer merely protects against viola-
tions of person and property through murder, rape, or burglary but also
restricts "discrimination" against certain minorities, collusive business
arrangements, "jaywalking," travel, the materials used in construction,
and thousands of other activities. The activities restricted not only are
numerous but also range widely, affecting persons in very different pur-
suits and of diverse social backgrounds, education levels, ages, races, etc.
Moreover, the likelihood that an offender will be discovered and con-
I would like to thank the Lilly Endowment for financing a very productive summer in
1965 at the University of California at Los Angeles. While there I received very helpful
comments on an earlier draft from, among others, Armen Alchian, Roland McKean, Harold
Demsetz, Jack Hirshliefer, William Meckling, Gordon Tullock, and Oliver Williamson.
I have also benefited from comments received at seminars at the University of Chicago,
Hebrew University, RAND Corporation, and several times at the Labor Workshop of
Columbia; assistance and suggestions from Isaac Ehrlich and Robert Michael; and sugges-
tions from the editor of the Jour,wl of Political Economy, Robert A. Mundell.
2 CRIME AND PUNISHMENT: AN ECONOMIC APPROACH
victed and the nature and extent of punishments differ greatly from person
to person and activity to activity. Yet, in spite of such diversity, some
common properties are shared by practically all legislation, and these
properties form the subject matter of this essay.
in the first place, obedience to law is not taken for granted, and
public and private resources are generally spent in order both to prevent
Crimes against persont
offenses and to apprehend offenders. In the second place, conviction is not
Crimes against propert
generally considered sufficient punishment in itself; additional and some- Illegal goods and
times severe punishments are meted out to those convicted. What deter- Some other crimes
mines the amount and type of resources and punishments used to enforce Total
a piece of legislation? In particular, why does enforcement differ so Public expenditures on
greatly among different kinds of legislation? Corrections
The main purpose of this essay is to answer normative versions of Some private costs of
these questions, namely, how many resources and how much punish- Overall total
ment should be used to enforce different kinds of legislation? Put
equivalently, although more strangely, how many offenses should be per- SOURCE. — Presidet
mitted and how many offenders should go unpunished? The method used
formulates a measure of the social loss from offenses and finds those ex- all violations, not jus
penditures of resources and punishments that minimize this loss. The receive so much new:
general criterion of social loss is shown to incorporate as special cases, white-collar crimes,
valid under special assumptions, the criteria of vengeance, deterrence, broadly, "crime" is
compensation, and rehabilitation that historically have figured so notwithstanding the
prominently in practice and criminological literature. evidence recently pu
The optimal amount of enforcement is shown to depend on, among Enforcement and Adi
other things, the cost of catching and convicting offenders, the nature of reproduced in Table
punishments—for example, whether they are fines or prison terms—and and local levels on po
the responses of offenders to changes in enforcement. The discussion, amounted to over $'
therefore, inevitably enters into issues in penology and theories of guards, counsel, and
criminal behavior. A second, although because of lack of space subsidiary, lion. Unquestionably
aim of this essay is to see what insights into these questions are provided significantly understa
by our "economic" approach. It is suggested, for example, that a useful the course of enforcii
theory of criminal behavior can dispense with special theories of anomie,
psychological inadequacies, or inheritance of special traits and simply I. This neglect probat
extend the economist's usual analysis of choice. merit any systematic sciei
analysis is seen most clearl
gambling is an "economic
II. BASIC ANALYSIS true that this loss of proba
the excitement of gamblin
A. THE COST OF CRIME pleasures of gambling are
are likely to engender a r
Although the word "crime" is used in the title to minimize terminologi- for the higher and more
cal innovations, the analysis is intended to be sufficiently general to cover Appendix).
GARY S. BECKER 3
employment laws,2 are not included, and a myriad of private precautions over checks in illeg:
against crime, ranging from suburban living to taxis, are also excluded. tions) because no rc
Table I also lists the Crime Commission's estimates of the direct
costs of various crimes. The gross income from expenditures on various
kinds of illegal consumption, including narcotics, prostitution, and mainly B. THE MODEL
gambling, amounted to over $8 billion. The value of crimes against prop-
erty, including fraud, vandalism, and theft, amounted to almost $4 bil- It is useful in deteri
lion,3 while about $3 billion worth resulted from the loss of earnings develop a model to
due to homicide, assault, or other crimes. All the costs listed in the table listed in Table I. TI
total about $21 billion, which is almost 4 per cent of reported national between (1) the nun
income in 1965. If the sizable omissions were included, the percentage cost of offenses, (2:
might be considerably higher. out, (3) the number
Crime has probably become more important during the last forty penditures on polic
years. The Crime Commission presents no evidence on trends in costs costs of imprisonme
but does present evidence suggesting that the number of major felonies of offenses and the
per capita has grown since the early thirties (President's Commission, The first four are d.
1967a, pp. 22—3 1). Moreover, with the large growth of tax and other later section.
legislation, tax evasion and other kinds of white-collar crime have pre-
sumably grown much more rapidly than felonies. One piece of indirect 1. DAMAGES
evidence on the growth of crime is the large increase in the amount of cur- Usually a belief tha
rency in circulation since 1929. For sixty years prior to that date, the tion behind outlawi
ratio of currency either to all money or to consumer expenditures had de- of harm would tend
clined very substantially. Since then, in spite of further urbanization and
income growth and the spread of credit cards and other kinds of credit,4
both ratios have increased sizably.3 This reversal can be explained by an with
unusual increase in illegal activity, since currency has obvious advantages
2. Expenditures by the thirteen states with such legislation in 1959 totaled almost $2
million (see Landes, 1966).
3. Superficially, frauds, thefts, etc., do not involve true social costs but are simply
where H, is the harr
transfers, with the loss to victims being compensated by equal gains to criminals. While concept of harm an
these are transfers, their market value is, nevertheless, a first approximation to the direct are familiar to econ
social cost. If the theft or fraud industry is "competitive," the sum of the value of the ing external disecor
criminals' time input—including the time of "fences" and prospective time in prison—plus an important subse
the value of capital input, compensation for risk, etc., would approximately equal the with the level of cri
market value of the loss to victims. Consequently, aside from the input of intermediate
products, losses can be taken as a measure of the value of the labor and capital input into
The social valu
these crimes, which are true social costs.
4. For an analysis of the secular decline to 1929 that stresses urbanization and the 6. Cagan (1965, cha
growth in incomes, see Cagan (1965, chap. iv). 1929 and 1960 to increa
5. In 1965, the ratio of currency outstanding to consumer expenditures was 0.08, com- 7. The ith subscript
pared to only 0.05 in 1929. In 1965, currency outstanding per family was a whopping $738. activity is being discusse
APPROACH GARY S. BECKER 5
private precautions over checks in illegal transactions (the opposite is true for legal transac-
re also excluded. tions) because no record of a transaction remains.6
of the direct
on various
and mainly B. THE MODEL
against prop-
to almost $4 bil- It is useful in determining how to combat crime in an optimal fashion to
loss of earnings develop a model to incorporate the behavioral relations behind the costs
listed in the table listed in Table 1. These can be divided into five categories: the relations
of reported national between (1) the number of crimes, called "offenses" in this essay, and the
the percentage cost of offenses, (2) the number of offenses and the punishments meted
out, (3) the number of offenses, arrests, and convictions and the public ex-
curing the last forty penditures on police and courts, (4) the number of convictions and the
e on trends in costs costs of imprisonments or other kinds of punishments, and (5) the number
jer of major felonies of offenses and the private expenditures on protection and apprehension.
Commission, The first four are discussed in turn, while the fifth is postponed until a
of tax and other later section.
liar crime have pre-
1. DAMAGES
piece of indirect
in the amount of cur- Usually a belief that other members of society are harmed is the motiva-
to that date, the tion behind outlawing or otherwise restricting an activity. The amount
had de- of harm would tend to increase with the activity level, as in the relation
her urbanization and
H, H,(O,),
ther kinds of credit,4
be explained by an with (1)
advantages
0,
1959 totaled almost S2
es urbanization and the 6. Cagan (1965, chap. iv) attributes much of the increase in currency holdings between
1929 and 1960 to increased tax evasion from the increase in tax rates.
nditures was 0.08, corn- 7. The ith subscript will be suppressed whenever it is to be understood that only one
ly was a whopping $738. activity is being discussed.
6 CRIME AND PUNISHMENT: AN ECONOMIC APPROACH
(4)
It would be cheaper to achieve any given level of activity the cheaper
of optimality were policemen,8 judges, counsel, and juries ana the more highly de-
Since both H' veloped the state of the arts, as determined by technologies like finger-
magnitudes. It fol- printing, wiretapping, computer control, and lie-detecting.9
One approximation to an empirical measure of "activity" is the num-
(5) ber of offenses cleared by conviction. It can be written as
where D' > 0, A pO, (7)
an activity. where p, the ratio of offenses cleared by convictions to all offenses, is
is recon- the overall probability that an offense is cleared by conviction. By sub-
permitted. stituting (7) into (6) and differentiating, one has
ês, which have been
used up in these cJ,=
aC(pO)
=c'o>o
are not identical ap
cost of murder is and (8)
among other
cost of gambling C0 = C'p> 0
disutility to
if p0 0. An increase in either the probability of conviction or the num-
burglary and em- ber of offenses would increase total costs. If the marginal cost of in-
wealth redistribu- creased "activity" were rising, further implications would be that
the possibility of
k cost of crime in
8. According to the Crime Commission, 85—90 per cent of all police costs consist of
damages to society, wages and salaries (President's Commission, 1967a, p. 35).
es are omitted, but 9. A task-force report by the Crime Commission deals with suggestions for greater
he crimes covered. and more efficient usage of advanced technologies (President's Commission, 1967e).
8 CRIME AND PUNISHMENT: AN ECONOMIC APPROACH
12. For example, Lord Shawness (1965) said, "Some judges preoccupy themselves
with methods of punishment. This is their job. But in preventing crime it is of less
C'h,,,,; C,,, = C"(h0)2 +
could be negative
significance than they like to think. Certainty of detection is far more important than
r
severity of punishment." Also see the discussion of the ideas of C. B. Beccaria, an in-
ly. However, C,,,, would
sightful eighteenth-century Italian economist and criminologist, in Radzinowicz (1948, 1,
ii is also unlikely. Note
p. 282).
and 6,,.. > 0.
13. See, however, the discussions in Smigel (1965) and Ehrlich (1967).
vated assault, burglary,
14. For a discussion of these concepts, see Sutherland (1960).
10 CRIME AND PUNISHMENT: AN ECONOMIC APPROACH
(12) enter illegal activities and thus would reduce the number of offenses. Or a
shift in the form of the punishment, say, from a fine to imprisonment,
it during a particular
would tend to reduce the number of offenses, at least temporarily, because
his punishment per
they cannot be committed while in prison.
g all these other in-
This approach also has an interesting interpretation of the presumed
greater response to a change in the probability than in the punishment.
effect there is "price
per convicted
An increase in p) "compensated" by an equal percentage reduction in f,
ays
would not change the expected income from an offense could change
either orf1 would
the expected utility, because the amount of risk would change. It is easily
Nould tend to reduce
lity of "paying" the shown that an increase in p,, would reduce the expected utility, and thus
6
the number of offenses, more than an equal percentage increase inf, jfj
That is,
has preference for risk; the increase in would have the greater effect if
he has aversion to risk; and they would have the same effect if he is risk
neutral.15 The widespread generalization that offenders are more deterred
by the probability of convictionp,than by the punishment when convicted
(13) turns out to imply in the expected-utility approach that offenders are risk
preferrers, at least in the relevant region of punishments.
The total number of offenses is the sum of all the 0, and would de-
pend on the set of p,,f, and U,,. Although these variables are likely to differ
above. The effect significantly between persons because of differences in intelligence, age,
anticipated. For ex- education, previous offense history, wealth, family upbringing, etc., for
ties or an increase in simplicity I now consider only their average values, p,f, and u,2° and write
the incentive to
17.
18. This means that an increase in "compensated" by a reduction in f, would reduce
,epend on the judge. jury, utility and offenses.
depends on the p's and 19. From n. 16
g that offenders do substi-
—aEU, p, fi
{U,(Y,) — U,(Y,
U,,<
= p,UJ(Y, —fj) —
as äp, U,, c'fj U,, U3
as
iTh
b 0 for fines, while b > 1 for torture, probation, parole, imprisonment, there are a fairly Ia
and most other punishments. It is especially large for juveniles in deten- directly subject to
tion homes or for adults in prisons and is rather close to unity for torture offenses, C; the pui
or for adults on parole. form of punishment
via the D, C, and 0 f
the loss L.
III. OPTIMALITY CONDITIONS
Analytical cony
The relevant parameters and behavioral functions have been introduced, a decisionvariabje. A
and the stage is set for a discussion of social policy. If the aim simply a given constant gn
were deterrence, the probability of conviction, p, could be raised clOse to variables, and their
1, and punishments,f, could be made to exceed the gain: in this way the the two first-order o
number of offenses, 0, could be reduced almost at will. However, an in-
crease in p increases the social cost of offenses through its effect on the
cost of combating offenses, C, as does an increase inf if b > 0 through
the effect on the cost of punishments, bf. At relatively modest values of and
p and f, these effects might outweigh the social gain from increased
L
deterrence. Similarly, if the aim simply were to make "the punishment
fit the crime," p could be set close to 1, and f could be equated to the If
harm imposed on the rest of society. Again, however, such a policy ig-
and are not
recombine terms, to
nores the social cost of increases in p andf.
What is needed is a criterion that goes beyond catchy phrases and
gives due weight to the damages from offenses, the costs of apprehending
and convicting offenders, and the social cost of punishments. The social-
and
welfare function of modern welfare economics is such a criterion, and
one might assume that society has a function that measures the social D
loss from offenses. If
(16) where
is the function measuring social loss, with presumably
abf>°' (17)
and
the aim would be to select values off, C, and possibly b that minimize L.
It is more convenient and transparent, however, to develop the dis-
cussion at this point in terms of a less general formulation, namely, to
assume that the loss function is identical with the total social loss in real The term on the
income from offenses, convictions, and punishments, as in increasing the numbe
infand in (22) throu
L=D(0)+C(p, 0)+bpfo. (18)
to be in a region whe:
The term bpfo is the total social loss from punishments, since bf is the
loss per offense punished and p0 is the number of offenses punished (if 22. The Mathematica
APPROACH GARY S. BECKER 15
role, imprisonment, there are a fairly large number of independent offenses). The variables
rjuveniles in deten- directly subject to social control are the amounts spent in combating
to unity for torture offenses, C; the punishment per offense for those convicted, f; and the
form of punishments, summarized by b. Once chosen, these variables,
via the D, C, and 0 functions, indirectly determine p, 0, D, and ultimately
the loss L.
Analytical convenience suggests that p rather than C be considered
Lye been introduced, a decision variable. Also, the coefficient b is assumed in this section to be
y. If the aim simply a given constant greater than zero. Then p and fare the only decision
Id be raised close to variables, and their optimal values are found by differentiating L to find
gain: in this way the the two first-order optimality conditions,22
nih. However, an in-.
ugh its effect on the (19)
(16) where
5ly
Cj
f Of
=
(17)
and (23)
ly b that minimize L. p
, to develop the dis- Lv = 0,,.
milation, namely, to
tal social loss in real The term on the left side of each equation gives the marginal cost of
as in increasing the number of offenses, 0: in equation (21) through a reduction
infand in (22) through a reduction in p. Since C' > 0 and 0 is assumed
(18) to be in a region where D' > 0, the marginal cost of increasing 0 through
ents, since bf is the
ffenses punished (if 22. The Mathematical Appendix discusses second-order conditions.
16 CRIME AND PUNISHMENT: AN ECONOMIC APPROACH
optimality analysis.
If the supply of
Number of offenses
neutral—a reduction i
FIGURE 1
inf would leave
loss, because the cost
by the reduction in p.
f must be positive. A reduction in p partly reduces the cost of combating ing p arbitrarily clos(
offenses, and, therefore, the marginal cost of increasing 0 must be less
product pf would md
when p rather than when f is reduced (see Figure 1); the former could
offenders were risk a
even be negative if were sufficiently large. Average "revenue," given
arbitrarily close to ze
by —bpf, is negative, but marginal revenue, given by the right-hand side of
only C but also 0 an
equations (21) and (22), is not necessarily negative and would be positive
There was a ten
if the elasticities €,, and e,were less than unity. Since the loss is minimized tunes in Anglo-Saxon
when marginal revenue equals marginal cost (see Figure 1), the optimal underdeveloped couni
value of Cf must be less than unity, and that of e,, could only exceed unity rather severely, at thc
if C,, were sufficiently large. This is a reversal of the usual equilibrium
condition for an income-maximizing firm, which is that the elasticity of
demand must exceed unity, because in the usual case average revenue is 24. If b < 0, the optini
Optimal social policy woul
assumed to be 25. Since
Since the marginal cost of changing 0 through a change in p is less conditions given by eqs. (2
than that of changing 0 throughf, the equilibrium marginal revenue from
p must also be less than that fromf. But equations (21) and (22) indicate
From this condition and ft
23. Thus if b < 0, average revenue would be positive and the optimal value of Ej
be determined.
would be greater than 1, and that of a,, could be less than I only if C,, were sufficiently 26. If b < 0, the optil
large. are either risk neutral or nt
APPROACH GARY S. BECKER 17
that the marginal revenue from p can be less if, and only if, e,, > As
pointed out earlier, however, this is precisely the condition indicating
that offenders have preference for risk and thus that "crime does not
pay." Consequently, the loss from offenses is minimized if p and f are
selected from those regions where offenders are, on balance, risk pre-
D' + C' ferrers. Although only the attitudes offenders have toward risk can
directly determine whether "crime pays," rational public policy indirectly
D' + C' +
insures that "crime does not pay" through its choice of p and f.24
I indicated earlier that the actual p's andf's for major felonies in the
United States generally seem to be in regions where the effect (measured
by elasticity) of p on offenses exceeds that off, that is, where offenders are
MR,=.—bPf(t —!) risk preferrers and "crime does not pay" (Smigel, 1965; Ehrlich, 1967).
Moreover, both elasticities are generally less than unity. In both respects,
therefore, actual public policy is consistent with the implications of the
optimality analysis.
If the supply of offenses depended only on pf—offenders were risk
umber of offenses neutral — a reduction in p "compensated" by an equal percentage increase
inf would leave unchanged pf, 0, D(0), and bpfo but would reduce the
loss, because the costs of apprehension and conviction would be lowered
by the reduction in p. The loss would be minimized, therefore, by lower-
the cost of combating ing p arbitrarily close to zero and raisingf sufficiently high so that the
0 must be less product pf would induce the optimal number of offenses.25 A fortiori, if
1); the former could offenders were risk avoiders, the loss would be minimized by setting p
page "revenue," given arbitrarily close to zero, for a "compensated" reduction in p reduces not
the right-hand side of only C but also 0 and thus D and bpf0.2°
would be positive There was a tendency during the eighteenth and nineteenth cen-
the loss is minimized turies in Anglo-Saxon countries (and even today in many Communist and
figure 1), the optimal underdeveloped countries) to punish those convicted of criminal offenses
only exceed unity rather severely, at the same time that the probability of captute and con-
the usual equilibrium
that the elasticity of
tse average revenue is 24. If b < 0, the optimality condition is that e,. < €1' or that offenders are risk avoiders.
Optimal social policy would then be to select p and fin regions where "crime does pay."
25. Since €, = e,, = if 0 depends only on pf, and C = 0 if p = 0, the two equilibrium
a change in p is less conditions given by eqs. (21) and (22) reduce to the single condition
arginal revenue from
(21) and (22) indicate D' =_bPf(l .J)
From this condition and the relation 0 = O(pj), the equilibrium values of 0 and pf could
Ld the optimal value of €, be determined.
nly if C,, were sufficiently 26. If b < 0, the optimal solution is p about zero and f arbitrarily high if offenders
are either risk neutral or risk preferrers.
18 CRiME AND PUNISHMENT: AN ECONOMIC APPROACH
g explanation of this
rn obviously absorbs IV. SHIFTS IN THE BEHAViORAL RELATIONS
emen, judges, juries,
iction in this proba- This section analyzes the effects of shifts in the basic behavioral rela-
crime, and, since the tions—the damage, cost, and supply-of-offenses functions—on the opti-
"obvious" offsetting mal values of p andf Since rigorous proofs can be found in the Mathe-
:ost of punishments. matical Appendix, here the implications are stressed, and only intuitive
re to keep police and proofs are given. The results are used to explain, among other things,
by meting out strong why more damaging offenses are punished more severely and more impul-
sive offenders less severely.
loss in income from An increase in the marginal damages from a given number of offenses,
and finite values of D', increases the marginal cost of changing offenses by a change in either
et to a compensated p or f (see Figures 2a and b). The optimal number of offenses would
in footnote 27 is necessarily decrease, because the optimal values of both p and f would
if punishments increase. In this case (and, as shortly seen, in several others), the optimal
of apprehension and values of p and f move in the same, rather than in opposite, directions.3'
also on If C An interesting application of these conclusions is to different kinds
regions,29 the loss in of offenses. Although there are few objective measures of the damages
id I even if offenders done by most offenses, it does not take much imagination to conclude
in p could raise, that offenses like murder or rape generally do more damage than petty
base in the loss. larceny or auto theft. If the other components of the loss in income were
optimal behavior if
Iction in income. For t' increases monotonically from a low of zero when p = I to an infinitely high value when
increase in the ex p = ci.
If the loss function equaled
not and those that
in p would
loss from this the optimality conditions would become
D'+C'=_bpf(l (21)
— -
20 CRIME AND PUNISHMENT: AN ECONOMIC APPROACH
Marginal Marginal
cost cost =
Marginal Marginal
c+c
revenue revenue
a
0
-J
MR
Number of offenses
a. b.
FIGuRE 2
the same, the optimal probability of apprehension and conviction and the
punishment when convicted would be greater for the more serious offenses.
Table 2 presents some evidence on the actual probabilities and
H
punishments in the United States for seven felonies. The punishments
are simply the average prison sentences served, while the probabilities
are ratios of the estimated number of convictions to the estimated number
of offenses and unquestionably contain a large error (see the discussions i—
in Smigel, 1965, and Ehrlich, 1967). If other components of the loss func-
tion are ignored, and if actual and optimal probabilities and punishments
are positively related, one should find that the more serious felonies have
higher probabilities and longer prison terms. And one does: in the table, —
TABLE 2
PROBABILITY OF CoNvIcTIoN AND AVERAGE PRISON TERM FOR SEVERAL MAJOR FELONIES, 1960
Murder
and Non-
negligent Aggra- All These
Man- Forcible vated Auto Felonies
slaughter Rape Robbery Assault Burglary Larceny Theft Combined
1.
Average time served (months) .
SOURCE.— I, Bureau of Prisons (1960, Table 3); 2 (a) and (b), Federal Bureau of Investigation (1960, Table 10); 2(c),
Federal Bureau of Investigation (1961, Table 2), Bureau of Prisons (n.d.,Table Al; 1961, Table 8).
22 CRIME AND PUNISHMENT: AN ECONOMIC APPROACH
Marginal
offenses observed in:
cost C tion between C,, (or
Marginal
if b > 0, a red
revenue increases the margil
Figure 4a). The resu
a decrease in the opi
the optima! p. Simi
respect top also in
MR
4b), decreases the 0;
f. An equal
the optimal number
- Number of offenses If b = 0, both marg
and changes in thes
FIGURE 3 p andf
The income of
The cost of apprehending and convicting offenders is affected by a little cost, its total i
variety of forces. An increase in the salaries of policemen increases both ferent elasticities of
C' and C,,, while improved police technology in the form of fingerprinting, markets having low
ballistic techniques, computer control, and chemical analysis, or police offenses could be
and court "reform" with an emphasis on professionalism and merit, the elasticities of suç
would tend to reduce both, not necessarily by the same extent. Our anal y- the total loss would
sis implies, therefore, that although an improvement in technology and lower p's and f's — ii
reform may or may not increase the optimal p and reduce the optimal Sometimes itis
number of offenses, it does reduce the optimalf and thus the need to rely offense into groups
on severe punishments for those convicted. Possibly this explains why the example, unpremedi
secular improvement in police technology and reform has gone hand in impulsively and, the
hand with a secular decline in punishments.
C,,, and to a lesser extent C', differ significantly between different
Marginal
kinds of offenses. It is easier, for example, to solve a rape or armed rob- cost
bery than a burglary or auto theft, because the evidence of personal identi-
fication is often available in the former and not in the latter offenses.32
Marginal
revenue \
This might tempt one to argue that the p's decline significantly as one
moves across Table 2 (left to right) primarily because the Co's are sig-
nificantly lower for the "personal" felonies listed to the left than for the
"impersonal" felonies listed to the right. But this implies that the f's
would increase as one moved across the table, which is patently false.
Consequently, the positive correlation between p,f, and the severity of
Nu
32. "If a suspect is neither known to the victim nor arrested at the scene of the crime, a-
the chances of ever arresting him are very slim" (President's Commission, 1967e, p. 8).
This conclusion is based on a study of crimes in parts of Los Angeles during January, 1966.
APPROACH GARY S. BECKER 23
punishments; likewise, the insane or the young are probably less affected of the payment "b'
than other offenders by future consequences and, therefore,33 probably society, and a net si
less deterred by increases in the probability of conviction or in the pun- offenses then becon
ishment when convicted. The trend during the twentieth century toward ditions, because it
relatively smaller prison terms and greater use of probation and therapy change in punishme
for such groups and, more generally, the trend away from the doctrine of Although trans:
"a given punishment for a given crime" is apparently at least broadly today, the other is
consistent with the implications of the optimality analysis. Communist countri
An increase in b increases the marginal revenue from changing the other punishments a
number of offenses by changing p orf and thereby increases the optimal waiting-time forms
number of offenses, reduces the optimal value off, and increases the opti- ing (see Becker, 196
mal value of p. Some evidence presented in Section II indicates that b is conditions. It is mt
especially large for juveniles in detention homes or adults in prison and optimality conditior
is small for fines or adults on parole. The analysis implies, therefore, that assumptions about t
other things the same, the optimal f's would be smaller and the optimal
p's larger if punishment were by one of the former rather than one of the B. OPTIMALITY Co
latter methods.
If b = 0, say, becau
hending and convic
V. FINES conditions (21) and
A. WELFARE THEOREMS AND TRANSFERABLE PRICING
The usual optimality conditions in welfare economics depend only on the Economists generall
levels and not on the slopes of marginal cost and average revenue func- such as factories thl
tions, as in the well-known condition that marginal costs equal prices. land, should be taxe
The social loss from offenses was explicitly introduced as an application external harm equal.
of the approach used itt welfare economics, and yet slopes as incorporated net damages equaled
into elasticities of supply do significantly affect the optimality conditions. harm always exceed
Why this difference? The primary explanation would appear to be that sumed to be zero, a:
it is almost always implicitly assumed that prices paid by consumers are suitable inequality cc
fully transferred to firms and governments, so that there is no social loss of apprehending, con
from payment. offense caused more
If there were no social loss from punishments, as with fines, b would offenses would be
equal zero, and the elasticity of supply would drop out of the optimality eliminate all offenses
condition given by equation If b > 0, as with imprisonment, some with the criterion 01
high.35
33. But see Becker (1962) for an analysis indicating that impulsive and other "irra- Equation (24) d
tional" persons may be as deterred from purchasing a commodity whose price has risen the fine and probabi
as more "rational" persons.
34. It remains in eq. (22), through the slope because ordinarily prices do not affect 35. "The evil of the
marginal costs, while they do here through the influence of p on C. (Bentham, 1931, first rule
APPROACH GARY S. BECKER 25
obably less affected of the payment "by" offenders would not be received by the rest of
herefore,33 probably society, and a net social loss would result. The elasticity of the supply of
iction or in the pun- offenses then becomes an important determinant of the optimality con-
tieth century toward ditions, because it determines the change in social costs caused by a
obation and therapy change in punishments.
from the doctrine of Although transferable monetary pricing is the most common kind
tly at least broadly today, the other is not unimportant, especially in underdeveloped and
alysis. Communist countries. Examples in addition to imprisonment and many
e from changing the other punishments are the draft, payments in kind, and queues and other
increases the optimal waiting-time forms of rationing that result from legal restrictions on pric-
increases the opti- ing (see Becker, 1965) and from random variations in demand and supply
II indicates that b is conditions. it is interesting, and deserves further exploration, that the
in prison and optimality conditions are so significantly affected by a change in the
nplies, therefore, that assumptions about the transferability of pricing.
and the optimal
rather than one of the B. OPTEMALITY CoNDITIoNs
depend only on the Economists generally conclude that activities causing "external" harm,
tverage revenue func- such as factories that pollute the air or lumber operations that strip the
Icosts equal prices. land, should be taxed or otherwise restricted in level until the marginal
ced as an application external harm equaled the marginal private gain, that is, until marginal
opes as incorporated net damages equaled zero, which is what equation (24) says. If marginal
ptimality conditions. harm always exceeded marginal gain, the optimum level would be pre-
appear to be that sumed to be zero, and that would also be the implication of (24) when
by consumers are suitable inequality conditions were brought in. In other words, if the costs
there is no social loss of apprehending, convicting, and punishing offenders were nil and if each
offense caused more external harm than private gain, the social loss from
s with fines, b would offenses would be minimized by setting punishments high enough to
)ut of the optimality eliminate all offenses. Minimizing the social loss would become identical
imprisonment, some with the criterion of minimizing crime by setting penalties sufficiently
high.35
npulsive and other "irra- Equation (24) determines the optimal number of offenses, O, and
ity whose price has risen the fine and probability of conviction must be set at levels that induce
narily prices do not affect 35. "The evil of the punishment must be made to exceed the advantage of the offense"
C. (Bentham, 1931, first rule).
26 CRIME AND PUNISHMENT: AN ECONOMIC APPROACH
(26) would replace equation (28) if the fine rather than the probability of
Conviction were fixed. Equation (30) would usually imply that D'(O)
the marginal harm > and thus that the number of offenses would exceed the optimal
number when costs were zero. Whether costs of apprehension and con-
assumed equal to viction increase or decrease the optimal number of offenses largely de-
could be set equal pends, therefore, on whether penalties are changed by a change in the
would then simply fine or in the probability of conviction. Of course, if both are subject to
kome control, the optimal probability of conviction would be arbitrarily close
to zero, unless the social loss function differed from equation (18) (see
(27) the discussion in Sec. III).
a fine determined
marginal harm suf- C. THE CASE FOR FINES
would be identical, Just as the probability of conviction and the severity of punishment are
'ctims." 36 If the harm
subject to control by society, so too is the form of punishment: legislation
tboth criteria would
usually specifies whether an offense is punishable by fines, probation,
institutionalization, or some combination. Is it merely an accident, or
z.ero, the optimal-
Ls as well as marginal
38. Since equilibrium requires thatf= G'(O), and since from (28)
:onviction were still
0(O) = H'(O) — G'(O) = — C'(O, 1),
have optimality considerations determined that today, in most countries, they are no worse 01
fines are the predominant form of punishment, with institutionalization re- other punishments
served for the more serious offenses? This section presents several argu- spend additional res
ments which imply that social welfare is increased if fines are used it'hen- prising, therefore, th
ever feasible. fact have not "paid
In the first place, probation and institutionalization use up social re- punishments,43 inclu
sources, and fines do not, since the latter are basically just transfer pay- opportunities and
ments, while the former use resources in the form of guards, supervisory absen
personnel, probation officers, and the offenders' own time.4° Table 1 indi- otherwise "rehabili
cates that the cost is not minor either: in the United States in 1965, about therapy, and other pi
$1 billion was spent on "correction," and this estimate excludes, of much additional cost
course, the value of the loss in offenders' time.41 sons do not easily d
Moreover, the determination of the optimal number of offenses and usually levied again
severity of punishments is somewhat simplified by the use of fines. A habilitate" them.
wise use of fines requires knowledge of marginal gains and harm and of One argument n
marginal apprehension and conviction costs; admittedly, such knowledge in effect, they permit
is not easily acquired. A wise user of imprisonment and other punish- bread or other gooth
ments must know this too, however; and, in addition, must know about the price of an offem
the elasticities of response of offenses to changes in punishments. As the example, the "price'
bitter controversies over the abolition of capital punishment suggest, it only difference is in
has been difficult to learn about these elasticities. in monetary units, in
I suggested earlier that premeditation, sanity, and age can enter into If anything, monetar
the determination of punishments as proxies for the elasticities of re- preferred iii pricing a
sponse. These characteristics may not have to be considered in levying Optimal fines d
fines, because the optimal fines, as determined, say, by equations (27) marginal harm and cc
or (29), do not depend on elasticities. Perhaps this partly explains why ers. This has been ci
economists discussing externalities almost never mention motivation or
intent, while sociologists and lawyers discussing criminal behavior in- 42. Bentham recognii
variably do. The former assume that punishment is by a monetary tax or another useful quality in a
fine, while the latter assume that nonmonetary punishments are used. punishing an offense and
to alarm. This is a charact
Fines provide compensation to victims, and optimal fines at the mar- 43. In the same way.
gin fully compensate victims and restore the status quo ante, so that society, has led to addit,
bonuses, hospitalization ri
40. Several early writers on criminology recognized this advantage of fines. For ex- 44. See Sutherland (I
ample. "Pecuniary punishments are highly economical, since all the evil felt by him who 45. The very early Et
pays turns into an advantage for him who receives" (Bentham, 1931, chap. vi), and "Im- it has been said that "eve
prisonment would have been regarded in these old times Ica. tenth as a useless price, and much of the ju
punishment; it does not satisfy revenge, it keeps the criminal idle, and do what we may, these preappointed prices'
ii is cost/v' (Pollock and Maitland, 1952, p. 516; my italics). The same idea was p
41. On the other hand, some transfer payments in the form of food, clothing, and police car carrying a sign
shelter are included. speed limit—pick Out spee
APPROACH GARY S. BECKER 29
y, in most countries, they are no worse off than if offenses were not committed.42 Not only do
stitutionalization re- other punishments fail to compensate, but they also require "victims" to
resents several argu- spend additional resources in carrying out the punishment. It is not sur-
fines are used when- prising, therefore, that the anger and fear felt toward ex-convicts who in
fact have not "paid their debt to society" have resulted in additionaf
tion use up social re- punishments,43 including legal restrictions on their political and economic
ily just transfer pay- opportunities and informal restrictions on their social acceptance.
I guards, supervisory Moreover, the absence of compensation encourages efforts to change and
Table 1 mdi- otherwise "rehabilitate" offenders through psychiatric counseling,
in 1965, about therapy, and other programs. Since fines do compensate and do not create
estimate excludes, of much additional cost, anger toward and fear of appropriately fined per-
sons do not easily develop. As a result, additional punishments are not
of offenses and usually levied against "ex-finees," nor are strong efforts made to "re-
the use of fines. A habilitate" them.
and harm and of One argument made against fines is that they are immoral because,
such knowledge in effect, they permit offenses to be bought for a price in the same way that
and other punish- bread or other goods are bought for a price.45 A fine can be considered
on, must know about the price of an offense, but so too can any other form of punishment; for
As the example, the "price" of stealing a car might be six months in jail. The
suggest, it only difference is in the units of measurement: fines are prices measured
in monetary units, imprisonments are prices measured in time units, etc.
d age can enter into If anything, monetary units are to be preferred here as they are generally
the elasticities of re- preferred in pricing and accounting.
in levying Optimal fines determined from equation (29) depend only on the
by equations (27) marginal harm and cost and not at all on the economic positions of offend-
partly explains why ers. This has been criticized as unfair, and fines proportional to the in-
ention motivation or
criminal behavior in- 42. Bentham recognized this and said, "To furnish an indemnity to the injured party is
by a monetary tax or another useful quality in a punishment. It is a means of accomplishing two objects at once—
punishing an offense and repairing it: removing the evil of the first order, and putting a stop
tishments are used. to alarm. This is a characteristic advantage of pecuniary punishments" (1931, chap. vi).
ma! fines at the mar- 43. In the same way, the guilt felt by society in using the draft, a forced transfer to
s quo ante, so that society, has led to additional payments to veterans in the form of education benefits,
bonuses, hospitalization rights, etc.
vantage of fines. For cx- 44. See Sutherland (1960, pp. 267—68) for a list of some ut these.
the evil felt by him who 45. The very early English law relied heavily on monetary fines, even for murder, and
1931, chap. vi), and "Im- it has been said that "every kind of blow or wound given to every kind of person had its
nth century] as a useless price, and much of the jurisprudence of the time must have consisted of a knowledge of
le, and do what we may, these preappointed prices" (Pollock and Maitland, 1952, p. 451).
The same idea was put amusingly in a recent Mutt and Jeff cartoon which showed a
rn of food, clothing, and police car carrying a sign that read: "Speed limit 30 M per H—$5 fine every mile over
speed limit—pick out speed you can afford."
30 CRIME AND PUNISHMENT: AN ECONOMIC APPROACH
comes of offenders have been suggested.46 If the goal is to minimize the felonies and other c
social loss in income from offenses, and not to take vengeance or to inflict quently observed an
harm on offenders, then fines should depend on the total harm done by 139—53), 1 do not kn
offenders, and not directly on their income, race, sex, etc. In the same recognition that the
way, the monetary value of optimal prison sentences and other punish- quence of the nature
ments depends on the harm, costs, and elasticities of response, but not Another argumc
directly on an offender's income. Indeed, if the monetary value of the murder or rape, are
punishment by, say, imprisonment were independent of income, the pensate the harm
length of the sentence would be inversely related to income, because the special case of the n
value placed on a given sentence is positively related to income. exclusively wheneve:
We might detour briefly to point out some interesting implications then victims could no
for the probability of conviction of the fact that the monetary value of a have to be supplemer
given fine is obviously the same for all offenders, while the monetary to discourage
equivalent or "value" of a given prison sentence or probation period is probation, and parole
generally positively related to an offender's income. The discussion in ies; considerable han
Section 11 suggested that actual probabilities of conviction are not fixed resources to compen
to all offenders but usually vary with their age, sex, race, and, in particu- need for a flexible
lar, income. Offenders with higher earnings have an incentive to spend fines more readily an
more on planning their offenses, on good lawyers, on legal appeals, and This analysis im
even on bribery to reduce the probability of apprehension and conviction given offense and oth'
for offenses punishable by, say, a given prison term, because the cost to by fine and the latte
them of conviction is relatively large compared to the cost of these ex- these methods
penditures. Similarly, however, poorer offenders have an incentive to fore the cry is raised ti
use more of their time in planning their offenses, in court appearances, and consider the follOwin1
the like, to reduce the probability of conviction for offenses punishable Those punished
by a given fine, because the cost to them of conviction is relatively large agreed to by their "
compared to the value of their time.47 The implication is that the prob- for which su
ability of conviction would be systematically related to the earnings of creditors. Moreover,
offenders: negatively for offenses punishable by imprisonment and pos- voluntary market trat
itively for those punishable by fines. Although a negative relation for "debtors" and others.
one, the former is co
46. For example, Bentham said, "A pecuniary punishment, if the sum is fixed, is in the when apprehended. Y
highest degree unequal. . . Fines have been determined without regard to the profit of the subsequently
offense, to its evil, or to the wealth of the offender. . . Pecuniary punishments should al-
.
the poor man, in effec
ways be regulated by the fortune of the offender. The relative amount of the fine should be Whether a punis
fixed, not its absolute amount; for such an offense, such a part of the offender's fortune"
(1931, chap. ix). Note that optimal fines, as determined by eq. (29), do depend on "the profit
offenders lacking suffi
of the offense" and on "its evil."
47. Note that the incentive to use time to rcduce the probability of a given prison sen- 48. In one study, abou
tence is unrelated to earnings, because the punishment is fixed in time, not monetary, units; (see President's Commissk
likewise, the incentive to use money to reduce the probability of a given fine is also unrelated 49. The "debtor priso
to earnings, because the punishment is fixed in monetary, not time, units. repay loans.
APPROACH GARY S. BECKER 31
al is to minimize the felonies and other offenses punishable by imprisonment has been fre-
engeance or to inflict quently observed and deplored (see President's Commission, 1967c, pp.
total harm done by 1 39—53), I do not know of any studies of the relation for fines or of any
ex, etc. In the same recognition that the observed negative relation may be more a conse-
and other punish- quence of the nature of the punishment than of the influence of wealth.
of response, but not Another argument made against fines is that certain crimes, like
onetary value of the murder or rape, are so heinous that no amount of money could com-
lent of income, the pensate for the harm inflicted. This argument has obvious merit and is a
income, because the special case of the more general principle that fines cannot be relied on
d to income. exclusively whenever the harm exceeds the resources of offenders. For
eresting implications then victims could not be fully compensated by offenders, and fines would
monetary value of a have to be supplemented with prison terms or other punishments in order
while the monetary to discourage offenses optimally. This explains why imprisonments,
fr probation period is probation, and parole are major punishments for the more serious felon-
The discussion in ies; considerable harm is inflicted, and felonious offenders lack sufficient
riviction are not fixed resources to compensate. Since fines are preferable, it also suggests the
and, in particu- need for a flexible system of instalment fines to enable offenders to pay
in incentive to spend fines more readily and thus avoid other punishments.
legal appeals, and This analysis implies that if some offenders could pay the fine for a
and conviction given offense and others could not,48 the former should be punished solely
because the cost to by fine and the latter partly by other methods. In essence, therefore,
cost of these ex- these methods become a vehicle for punishing "debtors" to society. Be-
aye an incentive to fore the cry is raised that the system is unfair, especially to poor offenders,
urt appearances, and consider the following.
offenses punishable Those punished would be debtors in "transactions" that were never
Ion is relatively large agreed to by their "creditors," not in voluntary transactions, such as
is that the prob- loans,48 for which suitable precautions could be taken in advance by
to the earnings of creditors. Moreover, punishment in any economic system based on
prisonment and pos- voluntary market transactions inevitably must distinguish between such
kegative relation for "debtors" and others. If a rich man purchases a car and a poor man steals
one, the former is congratulated, while the latter is often sent to prison
the sum is fixed, is in the when apprehended. Yet the rich man's purchase is equivalent to a "theft"
regard to the profit of the subsequently compensated by a "fine" equal to the price of the car, while
y punishments should al- the poor man, in effect, goes to prison because he cannot pay this "fine."
ount of the fine should be Whether a punishment like imprisonment in lieu of a full fine for
f the offender's fortune"
,do depend on 'the profit
offenders lacking sufficient resources is "fair" depends, of course, on the
ity of a given prison sen- 48. In one study, about half of those convicted of misdemeanors could not pay the fines
me, not monetary, units; (see President's Commission, 1967c. p. 148).
iven fine is also unrelated 49. The "debtor prisons" of earlier centuries generally housed persons who could not
e, units. repay loans.
32 CRIME AND PUNISHMENT: AN ECONOMIC APPROACH
length of the prison term compared to the fine.50 For example, a prison larger than $1,000 a
term of one week in lieu of a $10,000 fine would, if anything, be "unfair" months or a fine nc
to wealthy offenders paying the fine. Since imprisonment is a more costly 1030, Arts. 70 and
punishment to society than fines, the loss from offenses would be reduced excessive prison sei
by a policy of leniency toward persons who are imprisoned because they imprisonment in liet
cannot pay fines. Consequently, optimal prison terms for "debtors" would often must "choose',
not be "unfair" to them in the sense that the monetary equivalent to them
of the prison terms would be less than the value of optimal fines, which in
D. COMPENSATION'
turn would equal the harm caused or the "debt." 51
It appears, however, that "debtors" are often imprisoned at rates of Actual criminal proc
exchange with fines that place a low value on time in prison. Although I of deterrence, comf
have not seen systematic evidence on the different punishments actually that these goals are
offered convicted offenders, and the choices they made, many statutes in simultaneously achi
the United States do permit fines and imprisonment that place a low value minimizing the soda
on time in prison. For example, in New York State, Class A Misde- sating "victims" fu.
meanors can be punished by a prison term as long as one year or a fine no partially pursued. Tb
ishment by optimal
50. \'et without any discussion of the actual alternatives offered, the statement is made criminal law would
that "the money judgment assessed the punitive damages defendant hardly seems compara- First and forem
ble in effect to the criminal sanctions of death, imprisonment, and stigmatization" ("Criminal become the same: n
Safeguards 1967).
SI. A formal proof is straightforward if for simplicity the probability of conviction is
ment of the "harm"
taken as equal to unity. For then the sole optimality condition is would become a bral
the public would coIl
\
(1') would be defined fun
the inability of a per
Since D' = H' — C', by substitution one has
Thus an action woulc
(2') pensated "harm" to
while tort law would
and since equilibrium requires that C' =f, As a practical e
wrought, consider th
1= H' + C' + bf(l (3') classic demonstratior
and reduce econom;
or
H'+C' 52. "Violations,"
, (4') days or fines no larger
I — b(I — 11€,)
imposed by the courts can
If b > 0, €, < I (see Sec. 111), and hence by eq. (4'), punish by imprisonment, b
53. "The cardinal
(5')
compensation for the injul
where the term on the right is the full marginal harm. If p as well asfis free to vary, the James, 1956, p. 1299).
analysis becomes more complicated, but the conclusion about the relative monetary values 54. Of course, many I
of optimal imprisonments and fines remains the same (see the Mathematical Appendix). be criminal under this app
APPROACH GARY S. BECKER 33
or example, a prison larger than $1,000 and Class B Misdemeanors, by a term as long as three
nything, be "unfair" months or a fine no larger than $500 (Laws of New York, 1965, chap.
nent is a more costly 1030, Arts. 70 and 80).52 According to my analysis, these statutes permit
es would be reduced excessive prison sentences relative to the fines, which may explain why
•isoned because they imprisonment in lieu of fines is considered unfair to poor offenders, who
for "debtors" would often must "choose" the prison alternative.
y equivalent to them
ptimal fines, which in
D. COMPENSATION AND THE CRIMINAL LAW
nprisoned at rates of Actual criminal proceedings in the United States appear to seek a mixture
in prison. Although I of deterrence, compensation, and vengeance. I have already indicated
1punishments actually that these goals are somewhat contradictory and cannot generally be
çade., many statutes in simultaneously achieved; for example, if punishment were by fine,
'that place a low value minimizing the social loss from offenses would be equivalent to compen-
tate, Class A Misde- sating "victims" fully, and deterrence or vengeance could only be
one year or a fine no partially pursued. Therefore, if the case for fines were accepted, and pun-
ishment by optimal fines became the norm, the traditional approach to
cred, the statement is made criminal law would have to be significantly modified.
hardly seems corn First and foremost, the primary aim of all legal proceedings would
('Criminal become the same: not punishment or deterrence, but simply the assess-
probability of conviction is
ment of the "harm" done by defendants. Much of traditional criminal law
would become a branch of the law of torts,53 say "social torts," in which
the public would collectively sue for "public" harm. A "criminal" action
(1') would be defined fundamentally not by the nature of the action but by
the inability of a person to compensate for the "harm" that he caused.
Thus an action would be "criminal" precisely because it results in uncom-
(2') pensated "harm" to others. Criminal law would cover all such actions,
while tort law would cover all other (civil) actions.
As a practical example of the fundamental changes that would be
wrought, consider the antitrust field. Inspired in part by the economist's
(3') classic demonstration that monopolies distort the allocation of resources
and reduce economic welfare, the United States has outlawed con-
52. "Violations," however, can only be punished by prison terms as long as fifteen
(4') days or fines no larger than $250. Since these are maximum punishments, the actual ones
imposed by the courts can, and often are, considerably less. Note, too, that the courts can
punish by imprisonment, by fine, or by both(La,i's of York, 1965, chap. 1030, Art. 60).
53. "The cardinal principle of damages in Anglo-American law [of torts] is that of
(5') conzpensatiolz for the injury caused to plaintiff by defendant's breach of duty" (Harper and
II asfis free to vary, the James, 1956, p. 1299).
relative monetary values 54. Of course, many traditional criminal actions like murder or rape would still usually
Mathematical Appendix). be criminal under this approach too.
34 CRIME AND PUNISHMENT: AN ECONOMIC APPROACH
spiracies and other constraints of trade. In practice, defendants are often realize that difficult ju
simply required to cease the objectionable activity, although sometimes policy, such as decidir
they are also fined, become subject to damage suits, or are jailed. tive or that certain rn
if compensation were stressed, the main purpose of legal proceedings and compensation wot
would be to levy fines equal to the harm inflicted on society by con- attention on the infor
straints of trade. There would be no point to cease and desist orders,
imprisonment, ridicule, or dissolution of companies. If the economist's Vi. PRIVATE EXPI
theory about monopoly is correct, and if optimal fines were levied, firms
would automatically cease any constraints of trade, because the gain to A variety of private
them would be less than the harm they cause and thus less than the fines number and incidence
expected. On the other hand, if Schumpeter and other critics are correct, employed, locks and al
and certain constraints of trade raise the level of economic welfare, and neighborhoods av
fines could fully compensate society for the harm done, and yet some and so on. Table I list
constraints would not cease, because the gain to participants would ex- and this undoubtedly i
ceed the harm to others.56 private action is esr
One unexpected advantage, therefore, from stressing compensation economies, where freq
and fines rather than punishment and deterrence is that the validity of the his person, to the "car
classical position need not be judged a priori. If valid, compensating If each person tn
fines would discourage all constraints of trade and would achieve the crimes, optimal privat
classical aims. If not, such fines would permit the socially desirable discussion of optimal
constraints to continue and, at the same time, would compensate society similar to that given b
for the harm done.
Of course, as participants in triple-damage suits are well aware, the = H
harm done is not easily measured, and serious mistakes would be inevit- The term represer
able. However, it is also extremely difficult to measure the harm in many against j, while C,, repr
civil suits,57 yet these continue to function, probably reasonably well on tion of p,, for offenses
the whole. Moreover, as experience accumulated, the margin of error positively related to 0
would decline, and rules of thumb would develop. Finally, one must tures on crime, and
persons.58
55. Actually, fines should exceed the harm done if the probability of conviction were The term
less than unity. The possibility of avoiding conviction is the intellectual justification for
punitive, such as triple, damages against those convicted.
of offenders committir
56. The classical view is that D'(M) always is greater than zero, where M measures in a net loss to society
the different constraints of trade and D' measures the marginal damage; the critic's view is victims. For example,
that for some Al, D'(M) < 0. It has been shown above that if D' always is greater than just a transfer paymen
zero, compensating fines would discourage all offenses, in this case constraints of trade,
while if D' sometimes is less than zero, some offenses would remain (unless the
marginal cost of detecting and convicting offenders, were sufficiently large relative to D'). 58. An increase in C1
57. Harper and James said, "Sometimes [compensation] can be accomplished with againstj, because more of i
a fair degree of accuracy. But obviously it cannot be done in anything but a figurative 59. The expected
and essentially speculative way for many of the consequences of personal injury. Yet it is siderable variance because
the aim of the law to attain at least a rough correspondence between the amount awarded as any single person. 1ff were
damages and the extent of the suffering" (1956, p. 1301). dude a term that dependec
C APPROACH GARY S. BECKER 35
, defendants are often realize that difficult judgments are also required by the present antitrust
',although sometimes policy, such as deciding that certain industries are "workably" competi-
s, or are jailed. tive or that certain mergers reduce competition. An emphasis on fines
se of legal proceedings and compensation would at least help avoid irrelevant issues by focusing
on society by con- attention on the information iftost needed for intelligent social policy.
ise and desist orders,
es. If the economist's VI. PRIVATE EXPENDITURES AGAINST CRIME
nes were levied, firms
e, because the gain to A variety of private as well as public actions also attempt to reduce the
hus less than the fines number and incidence of crimes: guards, doormen, and accountants are
ler critics are correct, employed, locks and alarms installed, insurance coverage extended, parks
economic welfare, and neighborhoods avoided, taxis used in place of walking or subways,
rn done, and yet some and so on. Table 1 lists close to $2 billion of such expenditures in 1 965,
participants would ex- and this undoubtedly is a gross underestimate of the total. The need for
private action is especially great in highly interdependent modern
tressing compensation economies, where frequently a person must trust his resources, including
the validity of the his person, to the "care" of employees, employers, customers, or sellers.
valid, compensating If each person tries to minimize his expected loss in income from
would achieve the crimes, optimal private decisions can be easily derived from the previous
socially desirable discussion of optimal public ones. For each person there is a loss function
tid compensate society similar to that given by equation (18):
would be inevit- The term represents the harm to j from the 0) offenses committed
sure the harm in many againstj, while C, represents his cost of achieving a probability of convic-
ly reasonably well on tion of for offenses committed against him. Note that C2 not only is
the margin of error positively related to 0,, but also is negatively related to C, public expendi-
p. Finally, one must tures on crime, and to Ck, the set of private expenditures by other
persons.58
bability of conviction were
The term measures the expected loss toj from punishment
justification for
of offenders committing any of the 0,,. Whereas most punishments result
zero, where M measures in a net loss to society as a whole, they often produce a gain for the actual
damage; the critic's view is victims. For example, punishment by fines given to the actual victims is
D' always is greater than just a transfer payment for society but is a clear gain to victims; similarly,
case constraints of trade,
remain (unless C'[M], the
ently large relative to D'). 58. An increase in C1, — 0,, and C held constant—presumably helps solve offenses
can be accomplished with againstj, because more of those against k would be solved.
anything but a figurative 59. The expected private loss, unlike the expected social loss, is apt to have con-
f personal injury. Yet it is siderable variance because of the small number of independent offenses committed against
een the amount awarded as any single person. 1ff were not risk neutral, therefore, L would have to be modified to in-
clude a term that depended on the distribution of
36 CRIME AND PUNISHMENT: AN ECONOMIC APPROACH
and similarly for eq. (21). "The" probability p is, of course, a weighted average of the
p,. Eq. (22') incorporates the presumption that an increase in public expenditures would be
If 11 is maximiz
partially thwarted by an induced decrease in private ones. optimality condition:
APPROACH GARY S. BECKER 37
(34) marginal income of criminals would be less than that available to them in
less risky legal activities—the optimal values of p1 and a would be where
"benefits do pay"—in the same sense that the marginal income of bene-
factors would exceed that available to them in less risky activities. In
this sense it "pays" to do "good" and does not "pay" to do "bad."
(35) As an illustration of the analysis,.consider the problem of rewarding
inventors for their inventions. The function A(B) gives the total social
value of B inventions, and A' gives the marginal value of an additional
one. The function K(B, Pi) gives the cost of finding and rewarding inven-
tors; if a patent system is used, it measures the cost of a patent office, of
preparing applications, and of the lawyers, judges, and others involved
in patent litigation.62 The elasticities e,, and e0 measure the response of
inventors to changes in the probability and magnitude of awards, while
b1 measures the social cost of the method used to award inventors. With
a patent system, the cost consists in a less extensive use of an invention
equations are related than would otherwise occur, and in any monopoly power so created.
rose discussed earlier Equations (34) and (35) imply that with any system having b1 > 0,
the smaller the elasticities of response of inventors, the smaller should be
a pure transfer but the probability and magnitude of awards. (The value of a patent can be
ily that e,, > e11, since changed, for example, by changing its life.) This shows the relevance of
implication of(21) the controversy between those who maintain that most inventions stem
that, at the margin, from a basic desire "to know" and those who maintain that most stem
at the margin, bene- from the prospects of financial awards, especially today with the emphasis
nal values of p and f on systematic investment in research and development. The former
the sense that the quite consistently usually advocate a weak patent system, while the latter
equally consistently advocate its strengthening.
Even if A', the marginal value of an invention, were "sizable," the
optimal decision would be to abolish property rights in an invention, that
is, to set Pt = 0, if b1 and K 63 were sufficiently large and/or the elasticities
(I')
and ea sufficiently small. Indeed, practically all arguments to eliminate
or greatly alter the patent system have been based either on its alleged
(2')
costliness, large K or b1, or lack of effectiveness, low e,) or e(, (see, for
example, Plant, 1934, or Arrow, 1962).
e can write (I') as
If a patent system were replaced by a system of cash prizes, the elas-
(3') ticities of response would become irrelevant for the determination of
62. These costs are not entirely trivial: for example, in 1966 the U.S. Patent Office
(4') alone spent $34 million (see Bureau of the Budget, 1967), and much more was probably
spent in preparing applications and in litigation.
ere U' 0, which was to 63. Presumably one reason patents are not permitted on basic research is the difficulty
(that is, cost) of discovering the ownership of new concepts and theorems.
40 CRIME AND PUNISHMENT: AN ECONOMIC APPROACH
the effectiveness. Th
optimal policies, because b1 would then be approximately zero.64 A sys-
tem of prizes would, moreover, have many of the same other advantages ferent kinds of offen
that fines have in punishing offenders (see the discussion in Sec. V). One rape, or crimes of y
significant advantage of a patent system, however, is that it automatically sive to changes in p
"meters" A', that is, provides an award that is automatically positively like embezzlement,
related to A', while a system of prizes (or of fines and imprisonment) has estimated by Smigel
do differ considerabi
to estimate A' (or D') independently and often somewhat arbitrarily.
theft, and assault tha
Probably effecti'
B. THE EFFECTIVENESS OF PUBLIC POLICY ferences in the
ticities of response.
The anticipation of conviction and punishment reduces the loss from
that varies greatly,
offenses and thus increases social welfare by discouraging some offenders.
What determines the increase in welfare, that is "effectiveness," of public offense.67 For the eai
efforts to discourage offenses? The model developed in Section III can be brought in and tF
be used to answer this question if social welfare is measured by income identify the offender.
and if "effectiveness" is defined as a ratio of the maximum feasible in- bery than for a relat
fair-employment legi
crease in income to the increase if all offenses causing net damages were
antitrust and public-u
abolished by fiat. The maximum feasible increase is achieved by choosing
optimal values of the probability of apprehension and conviction, p,
and the size of punishments, f (assuming that the coefficient of social C. A THEORY OF C
loss from punishment, b, is given). 65 The theory develope.
Effectiveness so defined can vary between zero and unity and de-
dude certain kinds (
pends essentially on two behavioral relations: the costs of apprehension
"unlawful." As an e
and conviction and the elasticities of response of offenses to changes in lude in order to obtai
p andf. The smaller these costs or the greater these elasticities, the smaller theory of the determ
the cost of achieving any given reduction in offenses and thus the greater industry, a theory
competitive, monopo
64. The right side of both (34) and (35) would vanish, and the optimality conditions
would be would emerge. One b:
A' — K' = 0 (34') is a theoryof collusic
The gain to firms
and
of their marginal cosi
A' — K' — K,, 0. (35')
66. A theoretical argu
Since these equations are not satisfied by any finite values of Pi and a, there is a difficulty offenders are less responsi
in allocating the incentives between and a (see the similar discussion for fines in Sec. V). 67. A study of crimes
65. In symbols, effectiveness is defined as than half the arrests were
made within the first week
D(0,)—[D(O)+ C(13, Ô)+ b13JO] 68. Evidence relating
E= penalties for these white-c
D(0,) — D(02)
and Johnson (1967).
where j3,f, and O are optimal values, 0, offenses would occur ifp=f= 0, and 0, is the 69. Jacob Mincer
value of 0 that minimizes D.
GARY S. BECKER 41
APPROACH
the effectiveness. The elasticities may well differ considerably among dif-
zero.64 A sys-
ferent kinds of offenses. For example, crimes of passion, like murder or
me other advantages
rape, or crimes of youth, like auto theft, are often said to be less respon-
sian in Sec. V). One
sive to changes in p and f than are more calculating crimes by adults,
that it automatically
like embezzlement, antitrust violation, or bank robbery. The elasticities
ornatically positively
estimated by Smigel (1965) and Ehrlich (1967) for seven major felonies
d imprisonment) has do differ considerably but are not clearly smaller for murder, rape, auto
ewhat arbitrarily.
theft, and assault than for robbery, burglary, and larceny.66
Probably effectiveness differs among offenses more because of dif-
ferences in the costs of apprehension and conviction than in the elas-
ticities of response. An important determinant of these costs, and one
duces the loss from
that varies greatly, is the time between commission and detection of an
some offenders.
offense.67 For the earlier an offense is detected, the earlier the police can
bctiveness," of public
be brought in and themore likely that the victim is able personally to
ed in Section III can
identify the offender. This suggests that effectiveness is greater for rob-
by income bery than for a related felony like burglary, or for minimum-wage and
Tiaximum feasible in-
fair-employment legislation than for other white-collar legislation like
net damages were
antitrust and public-utility regulation.68
achieved by choosing
and conviction, p.
coefficient of social C. A THEORY OF COLLUSION
The theory developed in this essay can be applied to any effort to pre-
ro and unity and de- clude certain kinds of behavior, regardless of whether the behavior is
osts of apprehension "unlawful." As an example, consider efforts by competing firms to col-
ifenses to changes in lude in order to obtain monopoly profits. Economists lack a satisfactory
lasticities, the smaller theory of the determinants of price and output policies by firms in an
and thus the greater industry, a theory that could predict under what conditions perfectly
the optimality conditions
competitive, monopolistic, or various intermediate kinds of behavior
would emerge. One by-product of our approach to crime and punishment
(34') is a theory of collusion that appears to fill a good part of this lacuna.6"
The gain to firms from colluding is positively related to the elasticity
of their marginal cost curves and is inversely related to the elasticity of
(35')
66. A theoretical argument that also casts doubt on the assertion that less "calculating"
nd a, there is a difficulty offenders are less responsive to changes in p andf can be found in Becker (1962).
ssion for fines in Sec. V). 67. A study of crimes in parts of Los Angeles during January, 1966, found that "more
than half the arrests were made within 8 hours of the crime, and almost two-thirds were
made within the first week" (President's Commission l967e, p. 8).
68. Evidence relating to the effectiveness of actual, which are not necessarily optimal,
penalties for these white-collar crimes can be found in Stigler (1962, 1966), Landes (1966),
and Johnson (1967).
p=f= 0, and 02 is the 69. Jacob Mincer first suggested this application to me.
42 CRIME AND PUNISHMENT: AN ECONOMIC APPROACH
their collective demand curve. A firm that violates a collusive arrange- tries have an incentiv
ment by pricing below or producing more than is specified can be said to firms producing illega
commit an "offense" against the collusion. The resulting harm to the col- tion, and abortion. Th
lusion would depend on the number of violations and on the elasticities successful collusion tI
of demand and marginal cost curves, since the gain from colluding de- like the United States
pends on these elasticities. would seem to have an
If violations could be eliminated without cost, the optimal solution
could be used against
would obviously be to eliminate all of them and to engage in pure monop-
course. On the other F.
oly pricing, in general, however, as with other kinds of offenses, there
ized collusions, those
are two costs of eliminating violations. There is first of all the cost of cause violators
discovering violations and of "apprehending" violators. This cost is c
greater, the greater the desired probability of detection and the greater lusions in illegal indu
the number of violations. Other things the same, the latter is usually prewar Germany.
positively related to the number of firms in an industry, which partly
explains why economists typically relate monopoly power to concentra-
tion. The cost of achieving a given probability of detection also depends VIII. SUMMARY A
on the number of firms, on the number of customers, on the stability of
customer buying patterns, and on government policies toward collusive This essay uses econo
arrangements (see Stigler, 1964). policies to combat ille
Second, there is the cost to the collusion of punishing violators. The its expenditures on po
most favorable situation is one in which fines could be levied against bility (p) that an offens
violators and collected by the collusion. If fines and other legal recourse convicted, the size of
are ruled out, methods like predatory price-cutting or violence have to form of the punishme
be used, and they hurt the collusion as well as violators. values of these variabl
Firms in a collusion are assumed to choose probabilities of detection, the constraints impost
punishments to violators, and prices and outputs that minimize their loss damages caused by a g
from violations, which would at the same time maximize their gain from another the cost of ack
colluding. Optimal prices and outputs would be closer to the competitive in p andf on 0.
position the more elastic demand curves were, the greater the number of "Optimal" decisioi
sellers and buyers, the less transferable punishments were, and the more the social loss in incon
hostile to collusion governments were. Note that misallocation of re- costs of apprehension
sources could not be measured simply by the deviation of actual from ishments imposed, and
competitive outputs but would depend also on the cost of enforcing collu- p, f, and the form of
sions. Note further, and more importantly, that this theory, unlike most strained by "outside"
theories of pricing, provides for continuous variation from purely com- from the minimization I
petitive through intermediate situations to purely monopolistic pricing. illustrated by a few
These situations differ primarily because of differences in the "optimal" If carrying out thc
number of violations, which in turn are related to differences in the imprisonment, or paro
elasticities, concentrations, legislation, etc., already mentioned. spect to a change in p'
These ideas appear to be helpful in understanding the relative success
of collusions in illegal industries themselves! Just as firms in legal indus- 70. An interpretation of
APPROACH GARY S. BECKER 43
a collusive arrange- tries have an incentive to collude to raise prices and profits, so too do
ecifled can be said to firms producing illegal products, such as narcotics, gambling, prostitu-
Llting harm to the cot- tion, and abortion. The "syndicate" is an example of a presumably highly
nd on the elasticities successful collusion that covers several illegal products.7° In a country
in from colluding de- like the United States that prohibits collusions, those in illegal industries
would seem to have an advantage, because force and other illegal methods
the optimal solution could be used against violators without the latter having much legal re-
ngage in pure monop-
course. On the other hand, in countries like prewar Germany that legal-
tds of offenses, there
ized collusions, those in legal industries would have an advantage, be-
irst of all the cost of cause violators could often be legally prosecuted. One would predict,
olators. This cost is therefore, from this consideration alone, relatively more successful col-
ction and the greater lusions in illegal industries in the United States, and in legal ones in
the latter is usually
prewar Germany.
which partly
power to concentra-
etection also depends VIII. SUMMARY AND CONCLUDING REMARKS
ers, on the stability of
toward collusive his essay uses economic analysis to develop optimal public and private
policies to combat illegal behavior. The public's decision variables are
violators. The its expenditures on police, Courts, etc., which help determine the proba-
be levied against bility (p) that an offense is discovered and the offender apprehended and
other legal recourse convicted, the size of the punishment for those convicted (f), and the
g or violence have to form of the punishment: imprisonment, probation, fine, etc. Optimal
tators. values of these variables can be chosen subject to, among other things,
babilities of detection, the constraints imposed by three behavioral relations. One shows the
minimize their loss damages caused by a given number of illegal actions, called offenses (0),
timize their gain from another the cost of achieving a given p, and the third the effect of changes
to the competitive in p andf on 0.
greater the number of "Optimal" decisions are interpreted to mean decisions that minimize
were, and the more the social loss in income from offenses. This loss is the sum of damages,
misallocation of re- costs of apprehension and conviction, and costs of carrying out the pun-
of actual from ishments imposed, and can be minimized simultaneously with respect to
st of enforcing collu- p, f, and the form of f unless one or more of these variables is Con-
theory, unlike most strained by "outside" considerations. The optimality conditions derived
)n from purely corn- from the minimization have numerous interesting implications that can be
nonopolistic pricing. illustrated by a few examples.
ces in the "optimal" If carrying out the punishment were costly, as it is with probation,
.0 differences in the imprisonment, or parole, the elasticity of response of offenses with re-
mentioned. spect to a change in p would generally, in equilibrium, have to exceed its
g the relative success
firms in legal indus- 70. An interpretation of the syndicate along these lines is also found in Schilling (1967).
SI
response to a change inf. This implies, if entry into illegal activities can cies. The small amoL
be explained by the same model of choice that economists use to explain amined certainly
entry into legal activities, that offenders are (at the margin) "risk pre- cies. For example, it
ferrers." Consequently, illegal activities "would not pay" (at the margin) States that more dan
in the sense that the real income received would be less than what could elasticity of response
be received in less risky legal activities. The conclusion that "crime would f, and that both are u
not pay" is an optimality condition and not an implication about the effi- mality analysis. There
ciency of the police or courts; indeed, it holds for any level of efficiency, the actual tradeoff be
as long as optimal values of p and! appropriate to each level are chosen. is frequently less, rati,
If costs were the same, the optimal values of both p and f would be prisoned. Although m:
greater, the greater the damage caused by an offense. Therefore, offenses are seriously hampere
like murder and rape should be solved more frequently and punished more quantity and quality
severely than milder offenses like auto theft and petty larceny. Evidence the analytical side by
on actual probabilities and punishments in the United States is strongly sion-making.
consistent with this implication of the optimality analysis. Reasonable men
Fines have several advantages over other punishments: for example, fits caused by different
they conserve resources, compensate society as well as punish offenders, tive labor markets are
and simplify the determination of optimal p's and f's. Not surprisingly, minimum are violatioi
fines are the most common punishment and have grown in importance and even abortion shc
over time. Offenders who cannot pay fines have to be punished in other market price, while tc
ways, but the optimality analysis implies that the monetary value to them These differences are
of these punishments should generally be less than the fines. public policy but have
Vengeance, deterrence, safety, rehabilitation, and compensation are sus on damages and
perhaps the most important of the many desiderata proposed throughout optimal implementatic
history. Next to these, minimizing the social loss in income may seem The main contribi
narrow, bland, and even quaint. Unquestionably, the income criterion can optimal policies to cot
be usefully generalized in several directions, and a few have already been tion of resources. Sinc
suggested in the essay. Yet one should not lose sight of the fact that it is allocation, an "econol
more general and powerful than it may seem and actually includes more enrich, the analysis of
dramatic desiderata as special cases. For example, if punishment were by aspects of the latter e
an optimal fine, minimizing the loss in income would be equivalent to as imprisonments, are
compensating "victims" fully and would eliminate the "alarm" that so as well as to offender
worried Bentham; or it would be equivalent to deterring all offenses that enters both the re
causing great damage if the cost of apprehending, convicting, and punish- Lest the reader be
ing these offenders were relatively small. Since the same could also be framework for illegal
demonstrated for vengeance or rehabilitation, the moral should be clear: tributors to criminolot
minimizing the loss in income is actually very general and thus is more Beccaria and Benthan
useful than these catchy and dramatic but inflexible desiderata. tunately, such an appi
This essay concentrates almost entirely on determining optimal and my efforts can I
policies to combat illegal behavior and pays little attention to actual poli- thereby I hope impro\
C APPROACH GARY S. BECKER 45
O illegal activities can cies. The small amount of evidence on actual policies that I have ex-
iomists use to explain amined certainly suggests a positive correspondence with optimal poli-
margin) "risk pre- cies. For example, it is found for seven major felonies in the United
t pay" (at the margin) States that more damaging ones are penalized more severely, that the
less than what could elasticity of response of offenses to changes in p exceeds the response to
ion that "crime would f, and that both are usually less than unity, all as predicted by the opti-
ication about the effi- mality analysis. There are, however, some discrepancies too: for example,
ny level of efficiency, the actual tradeoff between imprisonment and fines in different statutes
ach level are chosen. is frequently less, rather than the predicted more, favorable to those im-
oth p and f would be prisoned. Although many more studies of actual policies are needed, they
e. Therefore, offenses are seriously hampered on the empirical side by grave limitations in the
tly and punished more quantity and quality of data on offenses, convictions, costs, etc., and on
Evidence the analytical side by the absence of a reliable theory of political deci-
States is strongly sion-making.
haiysis. Reasonable men will often differ on the amount of damages or bene-
hments: for example, fits caused by different activities. To same, any wage rates set by competi-
as punish offenders, tive labor markets are permissible, while to others, rates below a certain
Not surprisingly, minimum are violations of basic rights; to some, gambling, prostitution,
grown in importance and even abortion should be freely available to anyone willing to pay the
be punished in other market price, while to others, gambling is sinful and abortion is murder.
bnetary value to them These differences are basic to the development and implementation of
the fines. public policy but have been excluded from my inquiry. I assume consen-
nd compensation are sus on damages and benefits and simply try to work out rules for an
proposed throughout optimal implementation of this consensus.
income may seem The main contribution of this essay, as I see it, is to demonstrate that
income criterion can optimal policies to combat illegal behavior are part of an optimal alloca-
w have already been tion of resources. Since economics has been developed to handle resource
t of the fact that it is allocation, an "economic" framework becomes applicable to, and helps
tually includes more enrich, the analysis of illegal behavior. At the Same time, certain unique
were by aspects of the latter enrich economic analysis: some punishments, such
ruld be equivalent to as imprisonments, are necessarily nonmonetary and are a cost to society
the "alarm" that so as well as to offenders; the degree of uncertainty is a decision variable
eterring all offenses that enters both the revenue and cost functions; etc.
ivicting, and punish- Lest the reader be repelled by the apparent novelty of an "economic"
same could also be framework for illegal behavior, let him recall that two important con-
oral should be clear: tributors to criminology during the eighteenth and nineteenth centuries,
ral and thus is more Beccaria and Bentham, explicitly applied an economic calculus. Unfor-
desiderata. tunately, such an approach has lost favor during the last hundred years,
letermining optimal and my efforts can be viewed as a resurrection, modernization, and
to actual pofi- thereby I hope improvement, of these much earlier pioneering studies.
46 CRIME AND PUNISHMENT: AN ECONOMIC APPROACH
MATHEMATICAL APPENDIX
Since D'+C'>O a
This Appendix derives the effects of changes in vanous parameters on the E1> I Therefore
optimal values of p andf It is assumed throughout that b> 0 and that equilib- D" + C'1> 0; and /
num occurs where the loss L.
aD ac ac ap , ,
Suppose that D'
ofachangeinaon/c
the analysis could easily be extended to cover negative values of b and of this
marginal cost term. The conclusion in the text (Sec. II) that D" + C" > 0 is
relied on here. I take it to be a reasonable first approximation that the elastici-
ties of 0 with respect to p or fare constant. At several places a sufficient condi- or
tion for the conclusions reached is that
a2c a2c
Cpo — Cop
Since a
is "small" relative to some other terms. This condition is utilized in the form
of a strong assumption that = 0, although I cannot claim any supporting
intuitive or other evidence.
The social loss in income from offenses has been defined as In a similar way it
enous variable
LD(O)+C(0,p)+bpf0. (Al)
If b and p were fixed, the value off that minimized L would be found from the
necessary condition If b is positively re
.
(A2) (D"+C")
or or
0D'+C'+bpf(l—E1), (A3)
if
or
APPROACH GARY S. BECKER 47
(AS)
Since D' + C' > 0, and b is not less than zero, equation (A3) implies that
us parameters on the E,> 1. Therefore would be greater than zero, since we are assuming that
> 0 and that equilib- D" + C"> 0; and f, the value of f satisfying (A3), would minimize (locally)
the loss L.
Suppose that D' is positively related to an exogenous variable a. The effect
>0; of a change in a on/can be found by differentiating equation (A3):
med as In a similar way it can be shown that, if C' is positively related to an exog-
enous variable /3,
(Al)
df —
;> 0.
— ±
wid be found from the (A8)
or
(A3)
df — —b7pf( I — E,)( I
(A9)
df — —
<0. (AlO)
or
and
dJ_—(D"+ C")Op(l/Ot)pr bf(1 — Ei)pr(l/0i)
(A 13)
dr —
since by assumption C,,0 = 0. Since 0,, < 0, and (D" + C") > 0,
If E0 is positively•
— C—) + (—) —
(Al4)
dr +
1ff rather than p were fixed, the value of p that minimizes L, J3, could be
if C,, were positive!
found from p would equal
(A 15)
P
dji—(D"+C")O,,f,(l
+ bf(l — > 0. (A16) di
It is suggested in Section II that C,,,, is generally greater than zero. If, as as- 71. If E,, and Er are co
su med, Then
dj3
—= , >0, (A19)
and
r(lIOi)
(A13) d/3—b-),pf(l —E1)(l/O,,)
<0. (A20)
(with = 0), since all the terms in the numerator are negative.
- E,,)5-> 0. (A 17) If both p and f were subject to control, L would be minimized by choosing
er than zero. If, as as- 71. If E,. and E,are constants, 0 = where a = l/E,, and b = 1/E,.
Then
=
ao ka
a21) —((1+1)
= afb<()
aOap ka
50 CRIME AND PUNISHMENT: AN ECONOMIC APPROACH
(A24)
E0
(A26)
and (A37)
af a13
—+ — = C2
(A27)
I means that By Cramer's rule,
L E1)p0, (A28) C1014' C20p1 — C21),
(A38)
az — +
— — CIO1I — C11)
(A 29) — (A39)
— +
and the signs of both derivatives are the same as the signs of the numerators.
Consider the effect of a change in D' resulting from a change in the param-
(A30) eter a. It is apparent that C1 = C2 = and by substitution
prove this by combin- af I) — + 0 (A40)
aa +
bf(1 — E1)p0. (A31) and
— — I) — +
(A41)
+
(A32)
since and < 0, > 0, and and > I.
2) and (A15) and by Similarly, if C' is changed by a change in f3, C1 = C2
— I) — +> 0 (A42)
(A33) +
and
52 CRIME AND PUNISHMENT: AN EcoNoMic APPROACH
— + If is changed
+ +
>0. (A43)
8/3
+
=—<0,
+
(A44)
and
— —O1E1bpf = ±> 0. (A45)
+ + REFERENCES
Similarly, if is changed by a change in C1 = 0, C2 =
Arrow, Kenneth J. "E.
aj — — + tion," in National I
> (A46)
— + — Direciion of Inve,.
and NJ.: Princeton
Becker, Gary S. "Irrat
—
<0. (A47) cal Economy 70 (F
88' — + = "A Theory of
If b is changed by a change in y, C1 = —b7pf( 1 — Ef), C2 —b7pf( I — E,j, - ber 1965).
and
Bentham. Jeremy.
Bureau of the Budget.
—(1 — dix. Washington: U
< 0,
— ——
(A48)
+ Bureau of Prisons. Pri
("National Prisone
since E, > > 1 and > also,
Characieristics.
8/3 —
—
—
+
— (1 — Ef)I]
+
o, (A49) —. U.S. Dept. of Justii
Federal Prisons
Cagan, Phillip. Deter,ni
for it can be shown that (1 — > (I — Note that when f is held con- 1875)960 New Y
stant the optimal value of p is decreased, not increased, by an increase in y. Res.), 1965.
"Criminal Safeguards
72. The term (1 — would be greater than (1 — if Chicago Law Revk
(D' + C")(i — + bp(I — E,)(l — E,)f0> (D" + C')(l — Ef) + bf(1 —
Ehrlich, Isaac. "The S
script, Columbia Ut
or Federal Bureau of
(D"+
bpf
> ——b— (1— E1) [(1—
fO
(I— E,)
p0' Washington: U.S. t
—p— Ibid., 1961.
bpf
Harper, F. V., and Jam
(D"+ C")(E1— > — E1)[(1 — E,,)(E,) —(1 — & Co., 1956.
Johnson, Thomas. "The
bpf Columbia Univ., N
—E,)(E,—E9).
KJeinman, E. "The Chc
Since the left-hand side is greater than zero, and the right-hand side is less than zero, the Criminal Sentencin€
inequality must hold. 1967.
APPROACH GARY S. BECKER 53
If is changed by a change in s, C2 = C1 = 0,
(A43)
0, (A50)
as + + +
and
(A44)
<0. (A51)
(A45)
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.