Lessons from the economics of crime

Stephen Machin, Olivier Marie

In many settings, criminal behaviour can be analysed just like any other economic decision-making process, namely – as the outcome of individual choices influenced by perceived consequences. This column explains the advantages of adopting an economic approach to understanding crime. Furthermore, criminal law and crime-prevention programmes can be evaluated using the same normative techniques applied to health, education, and environmental regulation.

What have economists contributed to our understanding of criminal behaviour and crime control? Could they help make sense of the recent large crime drop documented in the UK and other countries (Draca 2013, Marie 2010)?

As we approach the fiftieth anniversary of Nobel laureate Gary Becker’s seminal contribution (Becker 1968), the economics of crime is becoming part of the standard portfolio that makes up the discipline. On both sides of the Atlantic, a critical mass of academic economists has specialised in the study of crime and its control, and the field is growing rapidly.

Of course, social scientific study of crime was well established by the time of Gary Becker’s contribution with the dominant disciplines being sociology and psychology since the 1920s. Becker chose to bypass rather than engage with that tradition, stating that “a useful theory of criminal behaviour can dispense with special theories of anomie, psychological inadequacies, or inheritance of special traits and simply extend the economist’s analysis of choice.”

With this disciplinary imperialism as a guide, subsequent contributions from economists tended to adopt the view that crime research was virgin territory. Economists were initially not so welcome in criminology and, for the most part, were unconcerned, feeling they had little to learn from the ‘natives’. More recently, that separation between has begun to break down in a constructive manner with the growth of multi-disciplinary public-policy programmes and thinktanks.

In a new book, we examine the contribution of economists to the study of criminal behaviour and crime control (Cook et al. 2013). In doing so, we identify four key strands:

A normative framework for evaluating criminal law and crime prevention.

The application of sophisticated quantitative methods to analyse the causes of crime and the effects of crime-control measures in this framework.

The conception of criminal behaviour as individual choice, influenced by perceived consequences.

The aggregation of individual choices into a systems framework for understanding crime rates and patterns.

Policy choice

During the 1960s, with riots in US cities, escalating rates of crime and drug abuse, Congress created several high-profile commissions to assess the underlying problems and recommend effective reforms. Prominent criminologists of the day offered their opinions but had little in the way of relevant evidence. The political scientist James Q Wilson was a critical observer of criminology at the time and noticed that its sociological orientation did not lend itself well to evidence-based policy recommendations.

Crime was understood to be caused by culture and social structure. An analysis of these ‘root causes’ of crime provided little guidance for policymakers, whose ability to change structural aspects of society was very limited. In Britain, the lack of connection between criminology and policy was perhaps even greater, since the dominant ethos was against policy engagement, in part because of its heavier focus on the social context of crime.

Among the social sciences, economics tends to be best suited for addressing issues relevant to policy design.

The economic model presumes that observed behaviour is not the inevitable result of underlying social conditions, but rather results from individual choices influenced by perceived consequences. If government policy can change those consequences, then behaviour change can follow, especially for the marginal individual.

Furthermore, economics incorporates a well-developed normative framework that defines the public interest and lends itself to policy prescription.

Indeed, Becker’s contribution was primarily in the normative realm. He pointed out that the social costs associated with crime are the sum of the direct costs of victimisation and of efforts to control and prevent crime. If the goal is to minimise total social costs, then the optimal amount of crime is unlikely to be zero, since at some point the marginal costs of additional prevention will exceed the marginal benefit of an additional reduction in crime. And just because crime rates are declining does not mean that the ‘crime problem’ is less overall – crime-control costs, such as large increases in the prison population must be considered.

The normative framework also provides guidance for evaluating specific interventions. The economic question is not limited to ‘what works’ in crime control, but ‘what is worthwhile’. Cost-benefit analysis provides a set of rules for answering that question, and more generally, encourages a comprehensive approach to evaluation.

Quantitative methods

The other important feature of the application of the normative framework has been the contribution by economists of using advanced and innovative statistical methods. As economists have increasingly embraced the use of natural and field experiments, they have developed a much more robust understanding of what causes crime, and are now able to generate good estimates of the efficiency of different policy tools. This is true of the use of programme evaluation methods, as well where particular crime initiatives have been evaluated.

One economist who has been particularly creative in finding ways to study and identify the causes of crime is the University of Chicago’s Steven Levitt, whose research (and subsequent emergence as a celebrity, thanks to his 2005 Freakonomics book) has done much to inspire subsequent cohorts of graduate students in economics. Massive improvements in data quality and availability have also made possible great progress in statistical investigations into the causes of crime and what works to reduce offending.

Crime as a rational choice

A simplistic, but common understanding of crime, is that the population can be divided neatly into two groups: good guys and bad guys. In this view, the bad guys commit crime unless they are incapacitated, and the good guys are reliably law abiding. The economic model of crime shifts the focus from character to the choices available to individuals. While certain aspects of character (or what economists are inclined to call ‘preferences’) are surely not irrelevant, criminal activity represents a choice, or set of choices, that is available to everyone.

The choice of whether to commit crime is driven by the consequences, which differ among individuals depending on the opportunities available to them. This perspective leads naturally to a presumption that deterrence works – crime rates will be inversely related to the likelihood and severity of punishment.

But the economic model also incorporates the idea that programmes to improve legitimate life opportunities may have a deterrent effect through increasing the opportunity cost of time spent in criminal activity or prison. A recent study has confirmed that education had a large crime-reducing effect in England and Wales after cohorts of individuals were forced to stay longer at school because of changes in minimum school leaving age legislation (Machin et al. 2011).

The economic focus on choices and consequences does not preclude the possibility that character is also important in influencing criminal involvement. Efforts to rehabilitate criminals may focus on either increasing the quality of legitimate opportunities, or changing cognitive processes and capacities, such as self-control, empathy, and rationalisation.

While there have been myriad evaluations of specific programmes intended to reduce rates of recidivism, there still remains considerable uncertainty about the overall effect of a spell of imprisonment on subsequent behaviour.

Feedbacks and interactions

Economics is a social science. The theory of individual behaviour serves as a building block for a theory of aggregate outcomes. The interacting systems that connect crime-related choices by individuals to aggregate outcomes have not been fully worked out by economists, but the research literature provides a start on this project.

Criminal activity may be viewed as produced by individuals (active criminals) at a rate that is limited by the activities of the criminal justice system and private security measures. The electorate chooses through the political process how much public resource to devote to the criminal justice system, and households and businesses make myriad individual choices about how much private effort to devote to crime prevention and avoidance.

There are at least three noteworthy feedback loops in this system:

The capacity of the criminal justice system to control crime may be diluted by an increase in crime rates, which then causes a reduction in the likelihood or severity of punishment – resulting in further increases in crime.

An increase in the crime rate may raise the political salience of crime, leading to increased criminal-justice budgets and stricter sentencing, which may then rein in the crime rate.

A rise in crime may induce greater private efforts at prevention and avoidance of victimisation (e.g. locking doors, carrying weapons, hire guards, etc), which can in turn change public security provision and crime patterns.

Observed crime rates are thus the outcome of a complex interactive system, which may frustrate the goal of making unambiguous predictions, or even keeping track of all the relevant mechanisms.

Crime economics

Economists are here to stay in the study of crime, the criminal justice system, and crime prevention. They have brought with them a strong presumption that criminal behaviour can be modelled using the same conceptual apparatus that has been developed for risky decision-making, labour supply, consumer and firm behaviour, and even market structure and performance.

What is more, criminal law and crime-prevention programmes can be evaluated using the same normative apparatus that has become routinely applied to education, health, and environmental regulation. This ‘technology transfer’ to study of the criminal domain, first initiated by Gary Becker in 1968, has proven productive for both scholars and policymakers.

References

Becker, G (1968) ‘Crime and Punishment: An Economic Approach’, Journal of Political Economy 76, 169-217.

Cook, P J, S Machin, O Marie and G Mastrobuoni (2013), Lessons from the Economics of Crime, MIT Press.

Draca, M (2013) ‘The UK’s Riddle of Peacefulness: What Explains Falling Crime?’, CentrePiece 18(1).

Levitt, S (2005) Freakonomics: A Rogue Economist Explores the Hidden Side of Everything, William Morrow.

Machin S, O Marie and S Vujić (2011), "The Crime Reducing Effect of Education", Economic Journal 121, 463-84.

Marie, O (2010) "Reducing Crime: More Police, More Prisons or More Pay?", CEP Policy Analysis No. 12.