Recht und Ökonomie (Law and Economics) LVA-Nr.: 239.203 WS 2011/12 (8) Criminal Law 1 of 26 Prof....

Recht und Ökonomie (Law and Economics)

LVA-Nr.: 239.203

WS 2011/12

(8) Criminal Law

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Prof. Dr. Friedrich Schneider

Institut für Volkswirtschaftslehre

http://www.econ.jku.at/schneider

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Recht und Ökonomie WS 2011/12 Criminal Law (Strafrecht) Prof. Dr. Friedrich Schneider

Overview

(1) Introduction

(2) Rational Decision Making

(3) Market for Crime

(4) Incentives

(5) Risk and Deterrence

(6) Further Topic: Death Penalty

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1. Introduction

► Crime causes costs:

—economic problem of optimal allocation of resources

► Empirical evidence for influence of economic variables on the frequency of crime

►Employ economic modelling and econometric techniques to analyse relationship between:

— Crime,

— Deterrence (Fine/Sentence), and

— Economic situation.

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2. Rational Decision Making

If: (expected) utility from crime > (expected) utility (EU) from alternative time use (like honest work!)

Crime will be commited when EU > 0

EU = pU(Yi – f) + (1 – p)(U(Yi) – U(Yl)), where

► p = probability of sentencing

► U = von Neumann-Morgenstern utility function ∂U(.)/ ∂Y>0

► Yi(l) = income from illegal (legal) action

► f = fine (or imprisonment) in case of sentencing

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3. Market for Crime

► Equilibrium level of crime is determined by

Supply (S)

positive relationship between π und C: the higher the profit

(π) resulting from criminal act (C), the higher the incentive to

commit the crime.

Demand (D)

negative relationship between π und C: the more criminal

acts, the higher the sensitivity of (potential) victims,

profits of criminal acts decline.

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3. Market for Crime In all countries the optimal level of crime is greater than

zero!

►“… crime is a normal social phenomenon whose complete abolishment by government is neither possible nor desirable.” (Gary Becker 1968)

► Optimal level of crime where

—marginal cost of deterrence are equal to their marginal revenue (return).

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3. Market for Crime

Consequences of (equal) increases in wealth (or income):

—more protective measures, D declines

Consequences of increases in inequality:

—D, and possibly also S, increase

Total effect:

—crime may increase despite more protection!

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4. Crime Incentives

► Negative incentives:

— increase probability of sentencing, and

— increase sentences or fines.

► Positive incentives:

— increase wages,

— reduce unemployment,

— increase social benefits, and

— improve rehabilitation.

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4. Crime Incentives

Why did crime rates (unexpectedly) fall in the USA during

the 1990s?

Major factors according to the study of Levitt 2003:

► increase in the police force,

► more inmates in jails,

► reduced consumption of crack/other drugs,

► legalisation of abortions, and

► prevention programs.

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4. Crime Incentives

► Many studies showing a variety of influences of variables follow from the economic model of crime:

— Unemployment,

— job availability,

— inequality in income (distribution),

— police intensity,

— risk of sanctioning,

— demography (age, different nationalities, ‘racial composition’),

— drug consumption, and

— migration.

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5. Risk and Deterrence Probability of sanction, fine, and imprisonment

► Individuals may be

— risk averse, risk neutral, or risk lovers depending on their economic

and sociological situation

Important: product of probability of sanction and (expected) sentence, i.

e. p times f is relevant!

— increasing f and reducing p is, in general, more efficient

Fines are, in general, preferred to imprisonment, again being more

efficient

— labour resources lost plus cost of jailing

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5. Risk and Deterrence

Imprisonment:

— if individuals are risk averse, raising imprisonment terms

allows to lower probability of sanctioning more than

proportionally

• expected prison terms fall, thus cost to society decrease

— if individuals are risk loving, raising imprisonment terms

allows to lower probability of sanctioning less than

proportionally

• expected prison terms rise, thus cost to society increase

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Some Empirical Results according to U.S. studies from 2005:

Estimated cost of reducing property crime by 1 %

— more police officers USD 34.0 million in a district (state)

— more prison sentences USD 3.2 million (court costs)

— longer prison sentences USD 2.4 million (prison costs).

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Some Empirical Results according to U.S. studies from 2005:

Elasticities of property crimes (pc): a 10 % increase of

—police officers reduces pc by 3.2 %

— rate of imprisonment reduces pc by 4.8 %

— length of imprisonment reduces pc by 8.5 %

— increase in unemployment increases pc by 4.6 %

Larger impact on burglary and robbery

Smaller impact on theft

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5. Risk and Deterrence: Draconian Punishments

They may not be appropriate, because

► criminals lack income or wealth.

► judges may hesitate to convict (death penalty!).

► increased litigation leading to higher legal cost.

► of perverse incentives: steal bread and shoot baker.

► of disrespect for the law being ‘unjust’.

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6. Economics of crime: Further Topic: Death Penalty

limitations to economic analyses of crime

capital punishment and deterrence

addictive drugs and crime

criminalization of addictive drugs

plus:

— in-depth analyses of all of the (economic) factors described

above influencing criminal activities

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6. Further Topic: Death Penalty

Article in the NY Times (Nov. 18, 2007):

—Does death penalty save lives?

Some facts: USA, 2003:

—16,500 homicides

—144 death sentences

—3,400 inmates on death row

—65 executions

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‘Survey’ by DONOHUE & WOLFERS (2006)

Main results:

(1) "The view that the death penalty deters is still the product of belief, not evidence ... On balance, the evidence suggests that the death penalty may increase the murder rate."

(2) When D&W compared death penalty states with non-death penalty states, they found no evidence of any effect of executions on murder rates, either up or down.

6. Further Topic: Death Penalty As Deterrent?

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6. Further Topic: Death Penalty and Theories of ‚Deterrence‘

(1) Economic theory

— raise price fur murder

(2) Behavioural (psychological) theory

—small likelihood is treated as zero probability, or

— low frequency with great publicity deters

(3) Sociological theory

—executions reduce value of life, implies ‘brutalisation’ leads

to more homicides

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6. Further Topic: Death Penalty and US History of Murders & Executions

Results from Donohue and Wolfers (2006):

Aggregate time series show no clear correlation between homicides and

executions (20th century)

— 1900-1910: no correlation

— 1910-1920: executions down, homicides up

— 1920-1940: both increase

— 1940-1960: both decrease

— 1970-1975: moratorium on executions, homicides up

— 1975-1990: executions up, homicides remain high

— 1990-2000: executions up, homicides down

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6. Further Topic: Death Penalty: Comparison of 6 US-States without Death Penalty to USA

Results from Donohue and Wolfers (2006):

►Period analyzed: 1960 – 2000

► Abolition or moratorium and reinstatement in all other states

Result: very similar movement in the 6 States to the USA overall figures, high positive correlation between the two time series!

Conclusion: there must be other factors at work!

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6. Further Topic: Death Penalty - are other Factors important?

DEZHBAKHSH & SHEPHERD (2004) focus in their before/after comparison only on States that abolished or that adopted death penalty:

—abolition: 10 – 20 % increase in homicides

—reinstatement: 5 – 10 % decrease in homicides

But: ‘control group’ of States that had no change showed very similar effects!

— no difference to States that experienced changes!

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6. Further Topic: Death Penalty - How to Measure ‘Death Penalty’?

Binary variable – death penalty law? Y/N

Persons sentenced to death (always annual data)

Persons executed

Persons sentenced to death (per 100,000 inhabitants)

Persons sentenced to death (per total sentences)

Persons executed (per 100,000 inhabitants)

Persons executed (per 1,000 prisoners)

Persons executed (per prisoners on death row)

Persons on death row

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6. Further Topic: Death Penalty: Executions: Further Results

Not very robust results:

(1) When introducing year-fixed-effects into the

DEZHBAKHSH & SHEPHERD (2004)

study the effect of executions becomes

statistically insignificant!

(2) D & S use absolute numbers of executions –

heavy influence of Texas: omission of Texas

has the same effect as above!

(3) Using executions per 1,000 prisoner or per

100,000 residents again has the same effect!

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6. Further Topic: Death Penalty Conclusion on Deterrence Effect of Death Penalty

(1) Empirical evidence is (very) inconclusive

(2) Thus it cannot be employed to justify the death penalty

(3) Should one turn to more ‘philosophical’ reasons and

justifications?

—E.g. the government must act on the basis of a moral

obligation since inactivity (‘omission’) may

endanger its citizens?

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