Economic Analysis of

Criminal Law
 Economics
Economics is a discipline seemingly
concerned with market-based
transactions in which parties act
purposefully to realize the benefits of
exchange.
 Criminal Acts
In contrast, many criminal acts, are
inherently non-consensual, even
coercive. Moreover, many crimes
appear to be acts of impulse or
emotion rather than the kind of
rational decision making associated
with market behavior.
 The Relations
a) an emphasis on the role of incentives in
determining the behavior of individuals, whether
they are criminals, victims, or those responsible for
enforcing the law;
b) the use of econometric approaches that seek to
differentiate correlation from causality in
nonexperimental settings;
c) a focus on broad, public policy implications rather
than evaluation of specific, small-scale
interventions; and
d) the use of cost-benefit analysis as the metric for
evaluating public policies
 Pareto Efficiency

no one can be made

better off without
making at least one
individual worse off
 Kaldor Hicks Efficiency
outcome is considered more
efficient if a Pareto optimal
outcome can be reached by
arranging sufficient
compensation from those
that are made better off to
those that are made worse
off so that all would end up
no worse off than before
 Conventional Crimes
Murder
Cheating
Prostitute
Stealing
Drunk
 Dominasi Laissez Faire
"discrimination" against certain
minorities,
collusive business arrangements,
"jaywalking," travel,
the materials used in construction,
and thousands of other activities.
 Cost of Crime
Tipe of Crimes Cost
(Millions of Dollar)
Crimes against persons 815
Crimes against property 3,932
Illegal goods and services 8,075
Some other crimes 2,036
Total 14,858
Public expenditures on police, prosecution, 3,178
and courts 1,034
Corrections 1,910
Some private costs of combating crime 20,980
Overall total
Source.President's Commission on Law Enforcement and Administration of Justice
(1967d, p. 44).
 Why Some persons become
criminals?
Not Merely Basic
Motivation, but also..?

Rational Choice Theory

Cost-Benefit Analysis
 Punishment
death, torture, branding, fines,
imprisonment, banishment, restrictions on
movement and occupation, and loss of
citizenship are just the more common ones.
less serious offenses are punished primarily by
fines, supplemented occasionally by probation,
petty restrictions like temporary suspension of
one's driver's license, and imprisonment
The more serious offenses are punished by a
combination of probation, imprisonment, parole,
fines, and various restrictions on choice of
occupation
 Cost of Punishment
Punishments affect not only offenders but
also other members of society
Most punishments, however, hurt other
members as well as offenders: for example,
imprisonment requires expenditures on
guards, supervisory personnel, buildings,
food, etc
The total social cost of punishments is
the cost to offenders plus the cost or
minus the gain to others
 Fines
WELFARE THEOREMS
TRANSFERABLE PRICING

is the most common kind today, the other is

not unimportant, especially in underdeveloped
and Communist countries.
probation and institutionalization use up
social resources, and fines do not, since the
latter are basically just transfer payments, while
the former use resources in the form of guards,
supervisory personnel, probation officers, and
the offenders' own time.
 Fines
Fines provide compensation to victims, and optimal fines at
the margin fully compensate victims and restore the
status quo ante, so that they are no worse off than if offenses
were not committed. Not only do other punishments fail to
compensate, but they also require "victims" to spend additional
resources in carrying out the punishment. It is not surprising,
therefore, that the anger and fear felt toward ex-convicts who
in fact have not "paid their debt to society" have resulted
in additional punishments, including legal restrictions on their
political and economic opportunities and informal restrictions
on their social acceptance. Moreover, the absence of
compensation encourages efforts to change and otherwise
"rehabilitate" offenders through psychiatric counseling,
therapy, and other programs. Since fines do compensate and
do not create much additional cost, anger toward and fear of
appropriately fined persons do not easily develop. As a result,
additional punishments are not usually levied against "ex-
finees," nor are strong efforts made to "rehabilitate them.
 Fines
One argument made against fines is that they are
immoral because, in effect, they permit offenses
to be bought for a price in the same way that
bread or other goods are bought for a price.
A fine can be considered the price of an
offense, but so too can any other form of
punishment; for example, the "price" of stealing a
car might be six months in jail. The only difference
is in the units of measurement: fines are prices
measured in monetary units, imprisonments
are prices measured in time units, etc. If
anything, monetary units are to be preferred here
as they are generally preferred in pricing and
accounting.
PRIVATE EXPENDITURES AGAINST
CRIME
A variety of private as well as public
actions also attempt to reduce the
number and incidence of crimes:
guards, doormen, and accountants are
employed, locks and alarms installed,
insurance coverage extended, parks
and neighborhoods avoided, taxis used
in place of walking or subways, and so
on.