CRIME AND PUNISHMENT

AN ECONOMIC ANALYSIS

ECONOMICS AND LAW

Economics is a part of social science
which analyzes the production,
consumption and distribution of goods
and services.
Law in simple words is certain rules
and guidelines to be followed by the
citizens made by a higher authority to
maintain peace and order in the nation.

ECONOMICS ENRICHES LAW

PROFESSION
Economics provides a behavioral theory
to predict how people respond to changes
in laws.
At this stage, it is the most useful part of
behavioral science to law.
Economics also provides for a useful
normative standard for evaluating law and
policy.
Economics helps us to perceive law in a
way which is extremely useful to the
lawyers and to anyone who is interested in

WHAT IS CRIME?
Blackstone defines crime:
An act committed or omitted in
violation of a public law either
forbidding or commanding it.
This was however later modified A crime is a violation of a right
considered in reference to the
evil tendency of such violation as
regards the community at large.

Economic costs of crime

in USA

Types
Crimes against persons
Crimes against property
Illegal goods and services
Some other crimes

Costs (in millions of dollars)

815
3,932
8,075
2,036
Total
14,858
Public expenditures on police, prosecution, and courts
3,178
Corrections
1,034
Some private costs of combating crime
1,9 10
Overall total
20,980

From the above table we can see that public expenditures on police, criminal courts and counsel
amounted to over 4 billion dollars, while private outlays on burglar alarms, counsel and guards were
about 2 billion dollars. The table also lists the Crime Commission's estimates of the direct costs of
various crimes.

The Traditional Theory of Criminal Law

There are two fundamental questions we need to answer:
(1) What acts should be punished?
(2) To what extent?
Now, what we need to work on is that how the social cost of crime
can be reduced? This is from the economic perspective.
Criminal law defers from civil or tort law in many ways.
This can be understood in the following ways :
The intention of the criminal was to commit a wrong.
The harm done to the plaintiff was both public and private.
The plaintiff is the state, as opposed to a private individual (the case in
tort law)
The burden of proof is high in criminal law than in tort or civil law.
If the defendant is found guilty, he is punished under criminal law
while under civil law hes only made to compensate for his wrongdoing
maximum times.

EXPECTED
PUNISHME
NT

Y-AXIS
A

Model of Rational Crime to public

Policy
P
When we sum up the total number of
crimes which are committed by each
criminal we get the aggregate total
crimes in our society. The aggregate
number of crimes committed by
rational individuals will decrease with a
O
decrease in number of crimes
committed by each rational individual.
The figure shown below explains that as
crime decreases, punishment increases.
Due to the increase in punishment,
there is a decrease in the quantity of
crime because some criminals reduce
the number of crimes that they used to
commit while others who would
otherwise become criminals will not

Aggregate Crime

CRIME

C1

X-AXIS

The first law of deterrence explains that people commit less

crime when the expected punishment increases. But people think
that this law is false because people either commit crime
passionately, irrationally or ignorantly. Talking in the economic
language we can say that when the supply of crime is elastic, policy
makers can reduce crime significantly by moderate increase in
expected punishment.
When the supply of crime is inelastic, the variables
encompassed by the economic model of rational crime are
relatively less important for policy makers than other
variables, such as employment rates, family configuration,
drug addiction, quality of schooling etc.
There are many assumptions related to the criminals and his
crimes. We assume that a criminal knows the costs, benefits and
probabilities associated with his crime further assuming that these
costs and benefits are monetary. Risk-neutral crime is also an
assumption made by us. But criminals are unlikely to be neutral
towards risk.
Most criminals are unaware of the benefits of crime and

The Economic Goal of Criminal Law

There are two basic things which occur due to crime taking
place in society.
First, the criminals gain something and at the same time the
victim loses something. The resulting social harm equals the
net loss in value.
Second, the state and the potential victims of crime expend
resources to protect against it.
For example, city employs police officers to patrol the streets.
Criminals benefit out of the said crime can be both a gain and
a loss in the economy depending on the nature of the crime.
The criminals benefit partly offsets the victims cost.
Criminals gain should not be counted as a social benefit is
believed by many economists. Some illustrations to explain
this is that when a person steals food in order to meet his
hunger is a social gain and when a person rapes someone
then the pleasure felt by a rapist should not be counted as a
social gain corresponding with the victims pain.

 In the above figure 1.3, the horizontal axis

shows the reduction in the criminal activity
which ranges from no reduction to 100%
reduction in crime that reaches to the stage
of no crime at all.
The curve MSC d represents the marginal
social costs of achieving a given level of
crime reduction. The slope is upward because
generally before taking harsh steps, lenient
steps are taken in order to deter crime. The
MSB curve measures the marginal social
benefit of achieving various level of crime
reduction or deterrence.
The MSB curve is downward sloping because
the benefit to the society of a small reduction
in the amount of crime declines as the total
amount of crime declines. Thus we can say
that the reduction of 4%-6% benefits the
society more than the reduction of 94%-96%.
In the figure above, the social optimum
occurs at the level of deterrence marked D. If
there is further reduction in this curve, then it
implies that the society should reduce crime
further. And if the level of reduction in crime
is greater than D, the marginal social cost of
a further reduction exceed the marginal
social benefit, and thus the society should
allow more crime to take place and to go
undeterred.
Till the time deterrence is costly, the optimal
amount of crime is positive. If however the
deterrence cost rises, the optimal amount of
crime rises.

Figure 1.3 shows how to strike a

balance between the net cost of
the harm caused by crime and the
cost of preventing it.

Y
MSCd
MSCd
1

MSB
O

D
100%

D1
X

The Economics of Addictive Drugs and Crime

Increased drug abuse is one of the reasons for the increase in crime.
Certain drugs like heroin, crack cocaine etc. contributes to crime in
different ways. Some drug addicts need to commit crimes in order to
generate incomes. Drugs like alcohol also is one reason which forces
people to commit crimes by undermining their inhibitions and increasing
the instability of their moods. Drug dealers commit crimes against their
competitors in order to reduce competition in the market and establish
monopoly. To reduce the social costs of crime, the use of addictive drugs
should be reduced.
In order to reduce the usage of drugs and consumption of drugs, the
expected punishment for selling and using of the same should be
increased to such a level that its usage stops completely. But this
assumption is wrong as explained by various economists that the demand
for drugs is inelastic. This means that the demand of drugs remains
constant even if there is a price rise or fall, there is no significant change
in its demand. Instead the crime will rise with a rise in the price of drugs
because the criminal will now commit more heinous crime in order to
meet his expenditures which includes his drug costs.
This argument has been shown in the figure 1.4 shown below

Drug markets and price

Y
ADDICT

NON ADDICT
B

P2

D1

A1

P1

B
1
O

O
X

X1

X
X1

In this figure, there are two panels showing two different kind of drug users,
one who consumes drugs on regular basis shown in Addicts and others who
consume frequently shown as Non Addicts.
This figure shows the consequences of a successful campaign to interdict
drugs and punish the users and suppliers. When we raise the price from P1 to
P2, there is hardly any change in demand by the addicts but a significant
change is seen by the non addicts. The demand by addicts is inelastic as
shown in the figure where x is not much less than x1.

The influential factors in the crime of rape

In defining factors that have an influence on the crime of rape, first we

have to determine in advance the formula calculation of benefits they get
by the offender of the rape. Simply put, the formula can be termed as
follows:
D=Pq*Q C (Q)
Description: = total benefits implementation of rape;
Pq = value of the benefits of rape per unit;
C = cost of implementing ;
And Q = quantity units for acts of rape (or number of rape).
As long as the result D is positive, then the offender of the crime rape
will constantly has the potential to do such crimes. The best way to avoid
it that we should increase the worth of crime in such a way so that the
end result of D is negative. It is a primary goal of public policy rationale,
which makes the crime no longer profitable for the perpetrators