Lecture Issues in economics today - Chapter 24

Learning objectives of this chapter include: The elasticity of demand, the determinants of elasticity, elasticity and total revenue, the elasticity of supply, tax incidence.

Chapter 24 The Economics of Crime   McGraw­Hill/Irwin   © 2002 The McGraw­Hill Companies, Inc., All Rights Reserved Chapter Outline • • • •   WHO COMMITS CRIME AND WHY THE RATIONAL CRIMINAL MODEL THE COSTS OF CRIME OPTIMAL SPENDING ON CRIME CONTROL McGraw­Hill/Irwin   © 2002 The McGraw­Hill Companies, Inc., All Rights Reserved Who Commits Crime and Why • Disproportionately to their percentage in the population crime is committed by – Men – The young – The poor – The socially disadvantaged   McGraw­Hill/Irwin   © 2002 The McGraw­Hill Companies, Inc., All Rights Reserved Sources of Crime Statistics • Police reports – Potentially subject to police biases against minorities • Victim accounts – Not subject to bias because it is in the interest of a victim to give an accurate description of the perpetrator McGrawưHill/Irwin â2002TheMcGrawưHillCompanies,Inc.,AllRightsReserved The Result Whether we look at crime rates from police reports or from victim accounts the result is the same: – minorities commit more crime than would be accounted for by their 24% of the population   McGraw­Hill/Irwin   © 2002 The McGraw­Hill Companies, Inc., All Rights Reserved The Rational Criminal Model • Becker’s rational criminal model (RCM) assumes that a criminal’s choice to commit a crime is a rational one comparing the benefits of the crime with the uncertain outcome of success or jail • The model looks at crime like an investment: take a risk, get a high expected return; play it safe, get a low expected return   McGraw­Hill/Irwin â2002TheMcGrawưHillCompanies,Inc.,AllRightsReserved Implications of the RCM People with high legally-derived income are less likely to commit crime • The greater the punishment the less likely the criminal is to commit crime • The more likely the criminal is to be caught the less likely they are to commit crime   McGraw­Hill/Irwin   © 2002 The McGraw­Hill Companies, Inc., All Rights Reserved Evidence in favor of the RCM • Less than half of the prison population has a high school degree • 33% of criminals were not working when they committed their crime • Crime rose during the 1980s as real income for the poor was stagnant or falling and fell during the 1990s when it was rising McGrawưHill/Irwin â2002TheMcGrawưHillCompanies,Inc.,AllRightsReserved Evidence against the RCM Crime rose during the 1960s when real income for the poor was rising • Crime was much lower during the 1930s when incomes were quite low because of the depression   McGraw­Hill/Irwin   © 2002 The McGraw­Hill Companies, Inc., All Rights Reserved Challenges to the Basic Assumptions of the RCM • While property and drug crimes can be seen through the expected “costbenefit” lens, others can not: – e.g rape, spousal abuse, assault, school shootings – murder for hire is classic RCM but generally murder is not for monetary gain McGrawưHill/Irwin â2002TheMcGrawưHillCompanies,Inc.,AllRightsReserved Costs of Crime $93 billion is currently spent on the criminal justice system (police, courts and prisons) • There are nearly 14 million crimes – 1.8 million violent – 12 million non-violent – Approximately 14 million more are unreported   McGraw­Hill/Irwin   © 2002 The McGraw­Hill Companies, Inc., All Rights Reserved How Much Does an Average Crime Cost • Types of costs – Items taken or damaged – Lost income of victims – Psychological damage or “pain and suffering” • Costs per crime estimates – Ignoring Pain and Suffering $500 – Including Pain and Suffering $2,000-$3,000   McGraw­Hill/Irwin   © 2002 The McGraw­Hill Companies, Inc., All Rights Reserved Pain and Suffering Calculations • How much is pain and suffering worth? • Do you look at – Costs of psychological care? – Damage awards from jury trials? • Can you calculate a dollar value of pain and suffering – to the spouse of a murder victim – a rape victim   McGraw­Hill/Irwin   © 2002 The McGraw­Hill Companies, Inc., All Rights Reserved How Much Crime Does an Average Criminal Commit • Estimates from criminologists vary from a 12 to 180 • Economists use a conservative 15 to 20 to estimate the usefulness of crime control   McGraw­Hill/Irwin   © 2002 The McGraw­Hill Companies, Inc., All Rights Reserved The Net Result on the Question of How Much Crime Costs • At 15 crimes per year and $500 per crime each criminal commits $7,500 worth of crime each year he is not in jail • At 20 crimes per year and $3,000 per crime each criminal commits $60,000 worth of crime each year he is not in jail   McGrawưHill/Irwin â2002TheMcGrawưHillCompanies,Inc.,AllRightsReserved Optimal Spending on Crime Control While the “average” criminal may commit $60,000 worth of crime and it costs only $22,000 per year to keep them in prison, that is not what an economist would use to make the case • An economist would look at the benefit of locking up one additional criminal and compare that to the marginal cost of doing so This is called Marginal Analysis   McGraw­Hill/Irwin   © 2002 The McGraw­Hill Companies, Inc., All Rights Reserved Are the Right People in Jail? • More than half of the prison population in many states is incarcerated for drug crimes • Does it make sense to have a nonviolent person in prison?   McGraw­Hill/Irwin   © 2002 The McGraw­Hill Companies, Inc., All Rights Reserved What Laws Should we Rigorously Enforce • The marginal benefit of arresting all murderers or rapists is greater than the marginal benefit of arresting all recreational drug users and jaywalkers • The marginal cost of arresting only murders and rapists is less than the marginal cost of arresting all drug users and jaywalkers • Economists compare the marginal cost and the marginal benefit of targeting particular crimes   McGraw­Hill/Irwin   © 2002 The McGraw­Hill Companies, Inc., All Rights Reserved Marginal Cost and Marginal Benefit Marginal Costs Marginal Benefits MC MB Murders,  Rapists, Drug Dealers, Drug Users, Jaywalkers   McGraw­Hill/Irwin   © 2002 The McGraw­Hill Companies, Inc., All Rights Reserved What is the Optimal Sentence? • Death Penalty vs Life in Prison without Parole – Death Penalty Costs • Present value of extra adjudication • Dollar value of executing the innocent – Life without Parole Costs • Present value of housing costs • Present value of medical costs for an aged inmate – Economists generally agree that in monetary terms, the death penalty costs more than life in prison • Length of Sentence – As sentences get longer   McGraw­Hill/Irwin • the marginal costs of adding another year to a sentence grow (because of medical costs), • the benefits  decrease (because the older you are the © 2002 The McGraw­Hill Companies, Inc., All Rights Reserved  ... or “pain and suffering” • Costs per crime estimates – Ignoring Pain and Suffering $500 – Including Pain and Suffering $2,00 0-$ 3,000   McGraw­Hill/Irwin   © 2002 The McGraw­Hill Companies, Inc., All Rights Reserved... marginal cost and the marginal benefit of targeting particular crimes   McGraw­Hill/Irwin   © 2002 The McGraw­Hill Companies, Inc., All Rights Reserved Marginal Cost and Marginal Benefit Marginal Costs... as real income for the poor was stagnant or falling and fell during the 1990s when it was rising McGrawưHill/Irwin â2002TheMcGrawưHillCompanies,Inc.,AllRightsReserved Evidence against the