Crime Week 8

Question 1

Becker was one of the Chicago school founders

What was the Chicago school rationale (2)

Answer 1

Rationalist

Apply economic approaches (esp. optimisation), to topics not traditionally considered economic topics e.g crime

Question 2

Why would the optimal amount of crime not actually be 0?

Answer 2

Consider marginal conditions.

Consider cost of implementing measures to reach 0 crime. (Would be very high)

So not socially desirable

Question 3

Example of marginal trade offs

Answer 3

Hiring a cop , or hiring a nurse

Question 4

2 approaches considered in Becker’s

Answer 4

Positive
Normative

Question 5

Positive approach

Answer 5

Criminals consider costs/benefits of committing a crime

E.g gains, and risk of caught and punishment

Question 6

Normative approach

Answer 6

Social loss of crime
(as apposed to positive-cost/benefit from the criminals perspective)

Through sum of pain suffered by victims, and costs of crime prevention/prosecution

Question 7

Things to also consider in policy making for crime(2)

Answer 7

Gains to offenders

How far policy should accommodate for fear of crime? (Even if unwarranted)

Question 8

Harm function (victim), gain function (offender) and net cost/damage function (society)

Answer 8

Hi=Hi(Oi)

Hi is harm from the i’th activity
Oi is the activity level (number of offences)

G=G(O)
(As gain increases with the activity level/number of offences)

Net cost/damage (HARM TO VICTIM-GAIN TO OFFENDER)
D(O)=H(O)-G(O)

Question 9

Another assumption with these functions

Answer 9

Diminishing marginal gains exists for offenders eventually.

Increasing marginal harm from additional offences.

Question 10

Issue with damage function (2)

Answer 10

1.Criticism is it attaches equal weight to harm and gain. Harm could be offset fully by gain to offender (not showing net damage properly)

2.Attaching a monetary value to certain crimes, and for reducing crimes.
(Attaching monetary value to the damage to some crimes e.g sexual assault is hard. (For deciding harm and gain). Attaching monetary value for reducing crime e.g doctor providing health benefits)

Question 11

How to find optimal crime

Answer 11

Find minimum net damage. Do this by…

Differentiate net damage function twice. Should be >0 (second order condition) to prove a minimum

Question 12

Supply of offences

Answer 12

Oj=Oj(Pj,Fj,Uj)

Oj is number of offences
Pj is probability of conviction per offence
Fj is punishment per offence
Uj represents other influences (portmanteau variable) on Oj. E.g his income

Question 13

Why does price discrimination exist?

2. What would an increase in Pj or Fj do to the dependent variable Oj in the function?

Answer 13

Since only convicted offenders are punished. (police only charging some i.e the ones that get caught). Pays Fj only if caught.

So an increase in Pj (probability of conviction) or Fj (punishment) will reduce utility from an offence, so reduce offences (Oj), as higher risk for offender.

Question 14

So we want to increase Pj and Fj… but what does this require.

And 3 examples

Answer 14

An institutional structure i.e police system, court system, prison system, which costs society (loss)

So we need to consider a loss function for offences for society

Question 15

Loss function (all costs to society for reducing crime)

Answer 15

Damage + Cost of ensuring crime is caught with a probability P (for Pj) +cost of imposing fines (for Fj)

L=D(O) + C(p,0) + bpfO

E.g Cost of ensuring a 10% chance of catching someone stealing a car. So high probability would make C more expensive

Question 16

How to find optimal amount of crime

Answer 16

Differentiate p and f separately to their first order conditions to equal 0

Question 17

Marginal cost/benefit of crime reduction diagram

Answer 17

Y-axis cost
X axis quantity of crimes

Downward sloping cost of crime prevention (cheaper to reduce when quantity of crime is high compared to low quantity, eliminating last few is hard). Think in terms of thiefs. When high, easy to catch as everywhere. Last few are harder to locate

Upward sloping economic cost of crime, and social cost shifted higher parallely

Question 18

why is cost of crime prevention downward sloping.

Answer 18

Downward sloping cost of crime prevention (cheaper to reduce when quantity of crime is high compared to low quantity, eliminating last few is hard). Think in terms of thiefs. When high, easy to catch as everywhere. Last few are harder to locate

Question 19

Why is social cost> economic cost

Answer 19

Considers intangible costs too, stuff not captured by transactions e.g emotionally

Question 20

What does all the optimising framework require

Answer 20

We require estimates of elasticities and preference functions. As a lot of independent variables that influence crime but we want to see how much they influence

E.g elasticity of supply of offences responsive to changes in police spending.

Elastic=change in police spending leads to greater change in quantity of offences

Question 21

Damage function flaw

Answer 21

Attaching a monetary value to certain crimes, and for reducing crimes.

1. Attaching monetary value to the damage to some crimes e.g sexual assault is hard. (For deciding harm and gain)
2. Attaching monetary value for reducing crime e.g doctor providing health benefits

Question 22

How to attaching monetary values to damage hard to quantify e.g rape, murder, and attaching monetary value to gain (for reducing crime?)

Answer 22

Non-market valuation

Question 23

NMV

Answer 23

Attaches dollar value of reduced crime (estimate WTP to reduce crime count by 1)

Question 24

Two categories of NMVs and example linking to WTP (imports)

Answer 24

Revealed preference methods (infer from actual behaviour e,g seeing how much people pay for security)

Stated preference methods (infer by what is stated e.g asking how much people would pay for security)

Question 25

How we can look at NMV (3)

Answer 25

VOSL
Mortality risk
Crime specific measures to see WTP e.g to not be assaulted.

Question 26

Cost efficiency approach

Answer 26

Whether cost of crime reduction is less than benefit assigned to it. Consider its value for money

Question 27

Cost effectiveness

Answer 27

Achieve a particular level of crime the cheapest way.

Question 28

Criticism

Answer 28

Validity of stated preference methods (Jerry Hausman e.g lie)

How to accommodate for fear of crime, even if unwarranted

How to weigh interests of perpetrators i.e different categories e,g young v old

Question 29

Overall

Optimal crime rate: important balancing marginal cost of reducing crime against marginal benefits from the reduction.

Key: Optimal crime rate is all about margins.

Aiming for zero crime is socially undesirable when regarding marginal cost and benefit. E.g better to have a policeman or a doctor?????

Question 30

2 ways of finding optimal crime

Answer 30

Harm, gain and damage function (differentiate damage function)

Supply of offences , use loss function and differentiate pj and fj individually)