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Prof. Dr. Friedrich Schneider Institut für Volkswirtschaftslehre http://www.econ.jku.at/schneider . Recht und Ökonomie ( Law and Economics ). LVA-Nr.: 239.203 W S 2012/13 ( 7 ) Criminal Law ( Strafrecht ). Overview. Introduction Rational Decision Making Market for Crime

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Prof. Dr. Friedrich Schneider

Institut für Volkswirtschaftslehre

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

Recht und Ökonomie (Law and Economics)

LVA-Nr.: 239.203

WS 2012/13

(7) Criminal Law (Strafrecht)

Law and Economics

overview
Overview
  • Introduction
  • Rational Decision Making
  • Market for Crime
  • Incentives
  • Risk and Deterrence
  • Further Topic: Death Penalty

Law and Economics

1 introduction
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.

Law and Economics

2 rational decision making
2. Rational Decision Making
  • If: (expected) utility (EU) from crime > (expected) utility (EU) from alternative time use (like legal work!)
  • Crime will be committed when EU > 0
  • EU = p * U(Yi – f) + (1 – p) * [U(Yi) – U(YL)] , where:
  • p … probability of sentencing;
  • U … von Neumann-Morgenstern utility function ∂U(.) / ∂Y>0 ;
  • Yi … income from illegal action,
  • YL … income from legal action,
  • f … fine (or imprisonment) in case of sentencing.

Law and Economics

3 market for crime
3. Market for Crime
  • Equilibrium level of crime is determined by
  • Supply (S):

positive relationship between π and 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 and C: the more criminal acts, the higher the sensitivity of (potential) victims, profits of criminal acts decline.

Law and Economics

3 market for crime cont
3. Market for Crime (cont.)
  • 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 is where:
    • marginal cost of deterrence are equal to their marginal revenue (return).

Law and Economics

3 market for crime cont1
3. Market for Crime (cont.)
  • 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!

Law and Economics

4 crime incentives
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.

Law and Economics

4 crime incentives cont
4. Crime Incentives (cont.)
  • 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.

Law and Economics

4 crime incentives cont1
4. Crime Incentives (cont.)
  • 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.

Law and Economics

5 risk and deterrence
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 (p) and (expected) sentence (f)  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.

Law and Economics

5 risk and deterrence cont
5. Risk and Deterrence (cont.)

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.

Law and Economics

5 risk and deterrence cont1
5. Risk and Deterrence (cont.)

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).

Law and Economics

5 risk and deterrence cont2
5. Risk and Deterrence (cont.)

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

  • Elasticities of property crimes (pc): a 10 % increase of …
    • police officers reduces pc by3.2 %;
    • rate of imprisonment reduces pc by4.8 %;
    • length of imprisonment reduces pc by8.5 %;
    • increase in unemployment increases pc by 4.6 %.
  • Larger impact on burglary and robbery.
  • Smaller impact on theft.

Law and Economics

5 1 risk and deterrence draconian punishments
5.1. Risk and Deterrence: Draconian Punishments

Draconian punishments 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’.

Law and Economics

6 economics of crime further topic death penalty
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.

Law and Economics

6 further topic death penalty cont
6. Further Topic: Death Penalty (cont.)
  • Article in the NY Times (Nov. 18, 2007):
    • Does death penalty save lives?

(source: https://www.nytimes.com/2007/11/18/us/18deter.html?pagewanted=all)

  • Some facts: USA, 2003:
    • 16,500 homicides;
    • 144 death sentences;
    • 3,400 inmates on death row;
    • 65 executions.

Law and Economics

6 further topic death penalty 6 1 death penalty as deterrent
6. Further Topic: Death Penalty6.1. Death Penalty as Deterrent?

‘Survey’ by DONOHUE & WOLFERS (2006)

  • Main results:
  • "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."
  • When D&W compared death penalty states with non-death penalty states, they found no evidenceof any effect of executions on murder rates, either up or down.

Law and Economics

6 further topic death penalty 6 2 death penalty and theories of deterrence
6. Further Topic: Death Penalty6.2. Death Penalty and Theories of ‚Deterrence‘
  • Economic theory:
    • raise price for murder.
  • Behavioural (psychological) theory:
    • small likelihood is treated as zero probability, or
    • low frequency with great publicity deters.
  • Sociological theory:
    • executions reduce value of life, implies ‘brutalisation’ leads to more homicides.

Law and Economics

6 further topic death penalty 6 3 us history of murders executions
6. Further Topic: Death Penalty6.3. 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.

Law and Economics

6 further topic death penalty 6 4 comparison of six us states without death penalty in usa
6. Further Topic: Death Penalty6.4. Comparison of six US-States without Death Penalty in 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 six States to the USA overall figures, high positive correlation between the two time series!
  • Conclusion: there must be other factors at work!

Law and Economics

6 further topic death penalty 6 5 are other factors important
6. Further Topic: Death Penalty6.5. 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!

Law and Economics

6 further topic death penalty 6 6 how to measure death penalty
6. Further Topic: Death Penalty6.6. How to Measure ‘Death Penalty’?

Measures for ‘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.

Law and Economics

6 further topic death penalty 6 7 executions further results
6. Further Topic: Death Penalty6.7. Executions: Further Results

Not very robust results:

  • When introducing year-fixed-effects into the DEZHBAKHSH & SHEPHERD (2004) study, the effect of executions becomes statistically insignificant!
  • D. & S. use absolute numbers of executions –heavy influence of Texas: omission of Texas has the same effect as above!
  • Using executions per 1,000 prisoner or per 100,000 residents again has the same effect!

Law and Economics

6 further topic death penalty 6 8 conclusion on deterrence effect of death penalty
6. Further Topic: Death Penalty 6.8. Conclusion on Deterrence Effect of Death Penalty
  • Empirical evidence is (very) inconclusive.
  • Thus it cannot be employed to justify ‘death penalty’.
  • 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?

Law and Economics