An Economic Theory of Crime & Punishment

The theory must answer 2 Qs - “What acts should be punished?” and “To what
extent?” The first question asks for the distinguishing criteria of a crime, and the
second question asks to calibrate punishments.

I. The Traditional Theory of Criminal Law

An act should be treated as a crime and punished if doing so reduces social costs.
The severity of the punishment should be calibrated to minimize social costs.
This body of law embodies what we might call a traditional theory of crimes,
according to which criminal law differs from civil law by the following
characteristics:

1. The criminal intended to do wrong, whereas some civil wrongs are

accidental.
2. The harm done by the criminal was public as well as private.
3. The plaintiff is the state, not a private individual.
4. The plaintiff has a higher standard of proof in a criminal trial than in a civil
suit.
5. If the defendant is guilty, then he or she will be punished.

A. Criminal Intent

B. Public Harm and Public Prosecution

C. Standard of Proof
D. Punishment
 II. An Economic Theory of Crime and Punishment

The traditional theory of criminal law offers reasons for the characteristics of a
crime and distinguishes criminal prosecutions from civil disputes, but it does not
offer a predictive model of criminal behaviour or propose a clear goal for
criminal law.

Inadequacy of Tort Law, Necessity of Criminal Law

Two obstacles prevent substituting compensation for punishment:

First, perfect compensation may be impossible

How much money would you require in order to agree to allow someone to chop
of ur arm?
The relevant law cannot take price the crime.
Rather than pricing crime, the goal of punishment is to deter it. The state
prohibits people from intentionally harming others and backs this prohibition by
punishment. Thus, criminal law is a necessary supplement to tort law when
perfect compensation is impossible.

Second, even if perfect compensation were possible, the law may seek to
protect the rights of potential victims rather than their interests.

Ex – Level of compensation exists for arm. It would be impossible to prove

this level in court as arms are not sold in market.

There is a third reason to supplement liability with punishment in some

circumstances: Punishment is often necessary for deterrence. When deterrence
is the goal, actors are not free to pay the price and do as they
please. Instead, punishments are calibrated to deter those actors who prefer to
do the act in spite of its price

Rational Crime
According to model of RC, A rational decision maker takes the probability of
punishment into account when contemplating the commission of any crime.

Efforts to detect, prosecute, and convict criminals normally increase with the
crime’s seriousness.
Most people are in the situation most of the time in which
crime does not pay.

However, sometimes a person is in circumstances in which crime pays.

Crime pays, for example, when a person has the opportunity to commit the
crime with little chance of getting caught. Crime also pays in circumstances
where the criminal suffers relatively little from the punishment.

Applying the Model of Rational Crime to Public Policy

Rc model focusses on the crimes’ seriousness, not the number of crimes
committed.

With a slight adjustment, the model of the seriousness of crimes can become a
model of the quantity of crimes.

The interesting question for economists is not whether people commit less
crime when the expected punishment increases. Rather, the interesting
question is “How much do crime rates respond to increases in expected
punishment?”

The interesting question concerns the elasticity of the supply of crime.

When the supply of crime is elastic, policymakers can reduce crime significantly
by moderate increases in expected punishment.

Criminal Behavior and Criminal Intent

The economic model may be understood as an account of the deliberations of a
rational, amoral person when deciding in advance whether to commit a crime.
In the case of premeditated crimes, the economic model may correspond to the
actual reasoning process of the criminal.

In the case of spontaneous crimes, where there is no deliberation, the economic

model may nevertheless be understood as an account of the criminal’s behavior
but not of his reasoning.

General policies toward crime must be set by legislators and officials in the
criminal justice system.

For example, police have to decide where to send patrols in a city, and
prosecutors have to decide which crimes to prosecute. Such general policies
must be formulated with an eye to their aggregate effects, such as the social
costs of crime.
Does Punishment Deter Crime?

According to the economic theory of the decision to commit a crime, an increase

in expected punishment causes a decrease in crime, holding other variables
constant.

The deterrence hypothesis holds that crime decreases significantly—in technical

terms, the supply of crime is elastic with respect to punishment.

If so, then increasing the resources that society devotes to the arrest, conviction,
and punishment of criminals should reduce the harm caused by crime.

An alternative hypothesis holds that variations in the certainty and severity of

punishment do not significantly deter criminals. Rather, crime is the result of a
complex set of economic and sociological factors (or possibly biological
factors).

The appropriate way to minimize the social costs of crime is to attack these
root causes of crime—for example, to devote resources to job creation,
income maintenance, family counseling, mental health, and drug and alcohol
counseling.

Although public debate frames these two hypotheses as mutually exclusive,

they might both be correct to some extent. If many variables cause crime, the
optimal public policy for reducing it mixes criminal justice and socioeconomic
programs.

For Criminal law to have a deterrent effect on a potential criminal’s

conduct choices, the “following qs must be answered +vely
1. Does the potential offender know, directly or indirectly, and understand the
implications for him, of the
law that is meant to influence him?
2. If he does know, will he bring such understanding to bear on his conduct
choices at the moment of
making his choices?
3. If he does know the rule and is able to be influenced in his choices, is his
perception of his choices
such that he is likely to choose compliance with the law rather than commission
of the criminal offense?

III. Efficient Punishment

A. IMPRISONMENT
1.The Social Benefits of Imprisonment

At least four social benefits: (1) deterrence, (2) retribution, (3) rehabilitation,
and (4) incapacitation

First, “retributivism” holds that justice requires punishing criminals in

proportion to the seriousness of their crimes. In principle, varying the length of
the sentence allows the state to adjust the shame and personal cost of
imprisonment until it is proportional to the seriousness of the crime.

The next benefit allegedly derived from imprisonment is “rehabilitation,”

which means that prison changes criminals so that, after their release, they do
not commit future crimes. For example, prison might teach the criminal a
marketable job skill or provide religious instruction that induces them to
eschew crime.

The final social benefit, “incapacitation,” refers to the fact that, while confined,
an offender cannot commit crimes against people outside prison. Even if prison
fails to deter or rehabilitate, imprisonment may reduce crime by incapacitating
criminals

2.The Social Costs of Imprisonment The social costs of imprisonment include

the direct costs of building, maintaining, and staffing prisons, and the
opportunity cost of losing the productivity of imprisoned people

3. Sentencing Reform - indeterminate sentencing, the criminal statute

prescribed an indefinite term for committing a particular offense, such as
imprisonment “for not less than five years, nor more than ten years.”
The judge had discretion in determining the sentence within these broad
boundaries. After the judge pronounced the sentence, the actual time served
would be determined by the prison authorities and the parole board,
depending on the prisoner’s behavior and rehabilitative progress
B. Fines
Imprisoning more people for longer periods may not be the most efficient way
to reduce crime. A leading alternative to imprisonment is fines. The typical fine
in the United States is a fixed fine per offense, independent of the offender’s
wealth, with statutorily defined absolute maximums. By contrast, many
European countries combine the use of the fixed-fine-per-offense system with
an additional fine (called the “day fine” system) scaled according to the
offender’s income.

Economics of Drugs

One of the popular explanations for increased crime is increased drug abuse.
The use of such addictive drugs as heroin, crack cocaine, and PCP contributes
to crime in three ways.

First, some drug addicts need to commit crimes to generate incomes. Their
habit is so debilitating that they cannot work at legitimate jobs, or they cannot
earn enough working at legitimate jobs to pay for drugs.

Second, drugs, like alcohol, may cause people to commit crimes by

undermining their inhibitions and increasing the volatility of their moods.
About 70 percent of those arrested in all large U.S. cities for robbery, weapons
offenses, and larceny test positive for heroin, ocaine, or PCP.

Third, drug dealing can be a lucrative business, and, therefore, a business

worth protecting against competition.

Drug dealers commit violent crimes against their competitors. Drug

use contributes significantly to crime, so reducing the social costs of crime
involves reducing the use of addictive drugs.