1. 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) WS 2012/131 of 25 Law and Economics

2. Overview (1)Introduction (2)Rational Decision Making (3)Market for Crime (4)Incentives (5)Risk and Deterrence (6)Further Topic: Death Penalty WS 2012/132 of 25Law and Economics

3. 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. WS 2012/133 of 25Law and Economics

4. 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(Y i – f) + (1 – p) * [U(Y i ) – U(Y L )], where:  p … probability of sentencing;  U … von Neumann-Morgenstern utility function ∂U(.) / ∂Y>0 ;  Y i … income from illegal action,  Y L … income from legal action,  f … fine (or imprisonment) in case of sentencing. WS 2012/134 of 25Law and Economics

5. 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. WS 2012/135 of 25Law and Economics

6. 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). WS 2012/136 of 25Law and Economics

7. 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! WS 2012/137 of 25Law and Economics

8. 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. WS 2012/138 of 25Law and Economics

9. 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. WS 2012/139 of 25Law and Economics

10. 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. WS 2012/1310 of 25Law and Economics

11. 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. WS 2012/1311 of 25Law and Economics

12. 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. WS 2012/1312 of 25Law and Economics

13. 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). WS 2012/1313 of 25Law and Economics

14. 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 by 3.2 %; –rate of imprisonment reduces pc by 4.8 %; –length of imprisonment reduces pc by 8.5 %; –increase in unemployment increases pc by 4.6 %.  Larger impact on burglary and robbery.  Smaller impact on theft. WS 2012/1314 of 25Law and Economics

15. 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’. WS 2012/1315 of 25Law and Economics

16. 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. WS 2012/1316 of 25Law and Economics

17. 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. WS 2012/1317 of 25Law and Economics

18. 6. Further Topic: Death Penalty 6.1. Death Penalty as Deterrent? ‘Survey’ by DONOHUE & WOLFERS (2006)  Main results: (1)"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." (2)When D&W compared death penalty states with non- death penalty states, they found no evidence of any effect of executions on murder rates, either up or down. WS 2012/1318 of 25Law and Economics

19. 6. Further Topic: Death Penalty 6.2. 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. WS 2012/1319 of 25Law and Economics

20. 6. Further Topic: Death Penalty 6.3. 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. WS 2012/1320 of 25Law and Economics

21. 6. Further Topic: Death Penalty 6.4. 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! WS 2012/1321 of 25Law and Economics

22. 6. Further Topic: Death Penalty 6.5. 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! WS 2012/1322 of 25Law and Economics

23. 6. Further Topic: Death Penalty 6.6. 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. WS 2012/1323 of 25Law and Economics

24. 6. Further Topic: Death Penalty 6.7. Executions: Further Results Not very robust results: (1)When introducing year-fixed-effects into the DEZHBAKHSH & SHEPHERD (2004) study, the effect of executions becomes statistically insignificant! (2)D. & S. use absolute numbers of executions – heavy influence of Texas: omission of Texas has the same effect as above! (3)Using executions per 1,000 prisoner or per 100,000 residents again has the same effect! WS 2012/1324 of 25Law and Economics

25. 6. Further Topic: Death Penalty 6.8. Conclusion on Deterrence Effect of Death Penalty (1)Empirical evidence is (very) inconclusive. (2)Thus it cannot be employed to justify ‘death penalty’. (3)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? WS 2012/1325 of 25Law and Economics