LEC1: Economics of Crime I Flashcards
What is Micro and Macroeconomics?
- Microeconomics
Studies how individuals behave and make decisions. - Macroeconomics
Concerned with general economic factors and aggregates (no individual
behaviour)
What is GDP?
Gross domestic product (GDP) = the market value of all final goods and services produced within the borders of a given country
Gross domestic product measures
the size (wealth) of an entire economy.
However, if one is interested in knowing the wealth of an average citizen, then the GDP has to be divided by the population size, resulting in the
measure.
What options does the government have to increase expenditure on safety and security?
The government has three options when
increasing expenditure on safety and
security issues:
1. Increase taxes
2. Borrow in financial markets by issuing government bonds
3. Reduce spending in other areas
All these options have opportunity costs, which need to be assessed.
What is Opportunity Costs?
The opportunity costs is the net benefit of the most preferred options you must forgo when you choose something else.
As if you take money it means that this money cannot be spend on other
opportunities.
What are the 3 aspects of the economics of crime?
Economics of crime is broadly concerned with three aspects:
1. Providing and economic rationale for the existence of criminal law.
2. Building a predictive model of criminal behaviour (positive theory).
3. Designing public law enforcement policies (normative theory).
Why do we need Criminal Law?
We need criminal law because:
1. Retribution (traditional account)
Criminals are punished because they committed the crime and they deserve to
be punished
2. Deterrence (economic account)
Criminals are punished to achieve the individual and general deterrence
What are the economic reasons for criminal law?
- Criminal behavior often lead to harms which are difficult to quantify, so
perfect
compensation is not possible. So its better to deter before it happens. - Criminal behavior messes up with
allocative efficiency.
Allocative efficiency implies that resources are allocated to those who value
them the most and they apply these resources to the most valuable use.
It is enabled by market transations and voluntary exchange, because such
exchange guarantees that goods move to those who value them the most and,
in doing so, makes both parties (the seller and the buyer) better off. - It imposes
negative externalities on society at large.
Negative externalities exist when the production or consumption of a product
result in a cost to the third parties.
Criminal behaviour leads to a production of an activity which harms the
victim (externalities imposed on the victim) and a broader community, e.g.,
because of the fear it creates (externalities spanning beyond the victim).
What are the foundations of deterrence theory?
- Costs of punishments must be higher than the benefit of the offence.
- Probability and severity of punishment need to balance each other out. F.e.
the less certain a punishment, the more severe the punishment should be. - The severity of the crime should be reflected in the punishment. A greater
offence should have a greater punishment, so that criminals have an incentive to
stop at lesser crimes.
What are the foundations of detterence theory !BECKER!
According to Becker’s deterrence theory:
1.
Criminals are rational and respond to incentives.
2. They will commit crimes only if the benefits of crime exceed the expected costs of
punishment (criminal sanctions). They
perform an individual cost and benefit
analysis.
What are Rational Agents?
- Have a well behaving preference
Completeness: ability to say which of the options one prefers.
Transitivity: if A>B and B>C then it must be that A>C. - Maximise their utility
An individual will chose an option with the greatest assigned number, the option
that gives them the greatest utility. - Have full information
This is what Rational Choice Theory prescribes
What is Cost Benefit Analysis?
The cost and benefit analysis is a systematic process to analyze, which decision to make and which to forgo by comparing the costs and benefits of options where both are expressed in comparable units (typically monetary units).
What are the costs of punishment?
Expected
costs of punishment:
1. Criminal sanctions are
never certain.
2. Expected punishment is the
severity of sanction x probability (certainty of
punishment)
Probability consists of the probability to be apprehended and to be convicted.
What is the First law of deterrence?
First law of deterrence: The lower the expected punishment, the more crimes will be committed.
What is the Elasticity of demand?
The elasticity of demand informs about the change in quantity demanded of a good due to a change in price.
When elasticity >1 then the response in quantity demanded is more than
proportional to changes in prices. Demand is elastic.
When elasiticity is <1 then the response in quantity demanded is less than
proportional to changes in prices. Demand is
inelastic.
If the elasticity of a crime is high, then policies affecting expected punishiment are more
effective.
