Econ 522 Economics of Law Dan Quint Spring 2013 Lectures 23 and 24.

Econ 522 Economics of Law Dan Quint Spring 2013 Lectures 23 and 24

Logistics MT2 graded – see Nathan if you didn’t get your bluebooks
HW4 due next Thursday (May 2) 1 1

Criminal Law

So far this semester, we’ve focused on civil law
Not Civil (Napoleonic) as opposed to Common Law (British)… …but Civil as opposed to Criminal Cases where one private individual is suing another… …generally looking for monetary compensation… …for some sort of wrong that was done Some cases are handled differently Friedman quote we saw earlier: “When someone shoots you, you call a cop. When he runs his car into yours, you call a lawyer.” All semester, we’ve been dealing with the second case Time to deal with the first

Criminal law differs from civil law in several ways
Criminal intended to do wrong Case brought by government, not individual plaintiff Harm done tends to be public as well as private Standard of proof is higher at trial If found guilty, defendant will be punished

What is the goal of criminal law?
Just like with civil law… To achieve efficiency, minimize total social cost Social costs consist of… Social cost of crimes that are committed Cost of detecting (catching) criminals And cost of punishing offenders error costs Civil law: overall goal was to minimize total social costs, which consisted of administrative costs and error costs Here, we have basically the same idea Cost of crimes is analogous to error crimes, everything else is analogous to administrative costs administrative costs

Intent Unlike a tort, a crime generally requires intent
Mens rea – a “guilty mind” (Literal intent occasionally not required) You’ve been hired as a lifeguard or a nurse You show up to work drunk, and as a result someone dies Criminally negligent homicide (Sometimes intent is enough even without harm) Attempted murder The first distinction is that a criminal conviction requires intent The legal term is mens rea, “a guilty mind” Tort law considered harms that happened accidentally An injurer might cause an accident while taking precautions, and still been liable under a strict liability rule An injurer might cause an accident while not taking sufficient precautions, and been liable under a negligence rule An injurer might cause an accident while being reckless, and been liable for punitive damages on top of compensatory damages But in any of these cases, the injurer did not intend for the harm to occur. There are circumstances where the line of intent gets blurred If someone is in a position of responsibility for someone else’s safety and, through a pattern of negligence, causes that person’s death, they can be charged with “criminally negligent homicide” even though they did not intend for the person to die (If you’re hired as a lifeguard and are drunk while on duty and someone drowns, you’re in trouble) The flip side of this: sometimes intent alone is enough, as when people are charged with attempted murder even though no actual harm occurred.

Criminal cases are brought by the state
Recall wrongful death tort cases Victim is dead, can’t receive compensation Family/friends can sue for lost wages, lost companionship, etc. Criminal cases don’t require living victim This allows prosecution of “victimless crimes” Theory is that all crimes harm the public – are “public bads” That is, breakdown of law and order in society harms everyone So public (represented by state) brings criminal actions The next difference is who initiates the case In civil law, a case is brought by the victim In criminal law, a case is brought by the state Recall that in tort cases involving accidental death, the victim could never receive damages; his family and friends could only sue for lost companionship or lost wages, not the lost life On the other hand, criminal cases do not require a living victim. This also allows prosecution of “victimless crimes” – that is, crimes which do not cause any clear harm to any individual, such as gambling, prostitution, and drug sales The theory here is that all crimes harm the public That is, the breakdown of law and order in society is a public bad So the public (represented by the state) brings criminal actions, not the victim.

Distinction between civil remedies and punishment
Nuisance law, contract law, tort law: damages serve two purposes Compensate the victim Cause injurer to internalize cost of harm done When injurer internalizes harm, we get pollution, or breach, or accidents, only when they are efficient Criminal law: intention is to deter crimes – that is, prevent them entirely, not just the “inefficient ones” Punishment need not be limited to magnitude of harm done Criminal punishments – imprisonment, execution – destroy resources Make criminal worse off, may not make anyone better off “Ex post, punishment is inefficient” A key difference between civil and criminal law is the distinction between civil remedies and “punishment” In nuisance law, contract law, and tort law, damages serve two purposes They compensate the victim And they cause the injurer to internalize the cost of the harm When the injurer internalizes the harm, we get pollution, or breach of contract, or accidents, to happen only when they are efficient, that is, when they are less costly than preventing them In criminal law, punishment is not meant to compensate the victim directly And in criminal law, punishment is meant to deter crimes – that is, to prevent them altogether, not just to prevent the inefficient ones When we talked about civil law, the goal wasn’t to eliminate accidents, or eliminate breaches of contract – it was to get only the efficient amount of them The goal of criminal law is different. We don’t want to get “only the efficient number of murders” – we would like to eliminate murder entirely, to the extent that it’s not too costly And so punishment need not be limited to the magnitude of the harm done Civil remedies generally transfer resources from one party to another, without destroying anything Criminal punishments, such as prison time and execution, often destroy resources That is, they are designed to make the criminal worse off without necessarily making anyone else better off. So civil penalties are designed to make injurers internalize the costs of their harms, so that these harms only occur when they are efficient; but criminal punishments are designed to deter crimes, to discourage their commission in all situations.

Criminal cases have higher standard of proof
Most civil cases: preponderance of the evidence Interpreted as: 51% certainty plaintiff is correct For punitive damages, clear and convincing evidence Higher degree of certainty In criminal cases, prosecution must prove guilt beyond a reasonable doubt Why so much higher?

Why should standard of proof be so high in criminal cases?
Think about error costs in either tort or criminal case: If “false positives” are more costly in criminal law, suggests conviction should require more certainty Probability of wrongful exoneration Social cost of wrongful exoneration + Probability of wrongful conviction Social cost of wrongful conviction X X Torts: reduced precaution Criminal: reduced deterrence Torts: excessive precaution Criminal: excessive deterrence (?) and social cost of excess punishment

Are crimes ever efficient?
Most crimes are clearly inefficient To steal my laptop, you might break my car window And, my laptop is worth more to me than to other people Stolen cars are worth much less than legally-owned ones And if you value my car more than me, there’s a legal alternative to you stealing it We said: civil law aims to get the efficient amount of accidents, or breach, or nuisances, while criminal law aims to deter all crimes This does beg an interesting question: are crimes ever efficient? Cooter and Ulen don’t seem to take much of a stand. They ask the question, “which acts should be treated as crimes?” Then they give the rather unsatisfactory answer, “an act should be treated as a crime if doing so increases social welfare.” Friedman clearly believes that some crimes may be efficient Clearly, most are not In order to steal my laptop out of my car, someone might have to break my window My laptop has lots of personal stuff on it – papers I’m working on, pictures of my friends – it’s probably worth more to me than to him Plus, my window got broken So the cost to me is likely larger than the benefit to the thief. Similarly, stolen cars are worth much less than legally-owned cars If someone steals my car, he’ll probably sell it for much less than it will cost me to replace it Plus, he may have to reduce the value of the car to steal it – by breaking a window, jamming a screwdriver in the ignition, etc. Again, the crime is inefficient. And if a crime were efficient – say, someone stealing my car because they value it much more than me – there is often a legal alternative – offering to buy the car from me.

Most crimes are clearly inefficient To steal my laptop, you might break my car window And, my laptop is worth more to me than to other people Stolen cars are worth much less than legally-owned ones And if you value my car more than me, there’s a legal alternative to you stealing it But Friedman offers examples of efficient crimes Starving hiker lost in the woods finds cabin with nobody home, breaks in and steals food Efficient murder Rich guy decides he’d derive immense pleasure from hunting a human Offers 10 people $1,000,000 each to draw straws, he gets to hunt and kill the loser If they all agree, is this transaction efficient? However, Friedman gives a couple of examples of efficient crimes One is a situation we saw earlier: a hiker is lost in the woods, on the brink of starvation, and stumbles on a cabin with nobody home. He breaks into the cabin and steals some food. (In this case, we have a legal doctrine to deal with the problem: private necessity. Rather than paying the penalty for trespass, breaking and entering, and theft, the “criminal” would likely just be liable for the damage done.) Friedman follows this with a much creepier example: efficient murder A very rich man decides he would derive a huge amount of pleasure from hunting and killing a human being He finds ten people who all agree that he can pay them each $1,000,000, they’ll draw straws, and he can hunt and kill whoever draws the shortest straw Since the transaction is voluntary, it seems like it must be efficient.

In 2001, Armin Miewes posted an ad online, “looking for a well-built 18-to-30-year-old to be slaughtered and then consumed.” And someone answered. They met, discussed it, and agreed Miewes would kill and eat the guy. So he did. And videotaped it. At the time, cannibalism was not illegal in Germany Is it a crime to kill someone who has consented to be murdered? In 2004, Miewes was convicted of manslaughter In 2006, he was retried, convicted of murder, sentenced to life in prison But also… if Miewes and his victim agreed he should be killed and eaten, and no one else was harmed, was this crime efficient? In fact, there’s a recent case that sounds more like this than you’d expect In 2001, a German man, Armin Meiwes, posted an ad online “looking for a well-built 18-to-30-year-old to be slaughtered and consumed.” Seriously. And someone answered The two met, discussed it, and agreed that Meiwes would kill and eat the guy. (This would fulfill various sexual fantasies that both men had.) So he did. And videotaped it. Some of the details of the story are gruesome, I won’t share them. In 2002, Meiwes was arrested, and admitted to what he had done At the time, cannibalism was not a crime in Germany So the question was primarily whether someone could be guilty of murdering someone who had consented to be murdered. In 2004, Meiwes was convicted of manslaughter and sentenced to 8 and a half years in prison In 2005, he was ordered retried, and in 2006, convicted of murder and sentenced to life in prison. So again, if the rich guy and his ten greedy friends all consent to the hunting contract, or Meiwes and his victim agree that he should be killed and eaten, are these crimes efficient? The answer depends on how much you buy into the argument of public bads One view is that certain actions are so repugnant they harm others just by their stench That is, everyone is somehow made worse off just by “living in a world where this type of thing is allowed to happen” We’ll come back to the question of efficient crimes in a bit For the most part, though, it’s probably safe to assume most crimes are inefficient

Why not use tort law to cover crimes too?
Tort law creates an incentive to avoid harms If it worked perfectly, might be no need for criminal law Reasons tort law may not work for certain offenses Relies on perfect compensation, which may be impossible Loss of life, crippling injury Even if possible in theory, might be impossible in practice If probability of being caught/convicted is less than one, deterrence requires punishment more severe than benefit received And if we made civil penalties severe enough, criminals might be judgment-proof Next question: why not just use tort law to cover crimes too? We saw that tort law can create an incentive to avoid certain harms If tort law worked perfectly, there might be no need for separate criminal law. The book offers three reasons why tort law is inadequate to deal with certain types of offenses. First, tort law depends on perfect compensation; but perfect compensation may be impossible, as in cases of the loss of a life or a crippling injury. Second, even if perfect compensation is possible in principle, it may be impossible in practice Court has no good way to figure out how much money would make me indifferent about losing an arm There’s no clear market substitute; and if they ask me, I have an incentive to lie. Third, if the probability of getting caught and convicted is less than one, then to deter the act, the punishment must be more severe than the benefit received We made this argument when we talked about punitive damages But the problem is even greater with deliberate acts. (If anyone caught stealing money was simply required to return it, we would expect this to lead to an awful lot of theft.) Plus, even if we could make the penalty more severe, criminals might be judgment-proof – unable to pay large enough damages – and the system would break down So in cases where perfect compensation is impossible, where being caught is unlikely, and where defendants might be judgment-proof, tort law might not work too well, and there is room for criminal law.

Theory of criminal law A theory of criminal law must answer…
Which acts should be punished as crimes? How should they be punished? Cooter and Ulen: Acts should be punished when aim is deterrence Acts should be priced when aim is internalization Aim should be deterrence when… perfect compensation is impossible people want law to protect rights instead of interests or enforcement errors undermine liability Much of today is from ch. 15 of Friedman book (Recall a long time back, when we distinguished between injunction/property protection and damages/liability protection We can recast this as the distinction between protecting a right and protecting an interest If someone is free to cut off my arm, provided they pay me for it, then my interest in that arm is protected; but my right to have that arm is not The book tries to make the case that in certain instances, it is better to protect rights than interests.)

General model of crime and punishment

Economic model of crime and punishment
Key assumption: rational criminals Potential criminals weigh private cost – chance of getting caught, times severity of punishment – against benefit If enforcement were free, we could eliminate crime Hire enough police to detect nearly all crimes Punish them very severely Nobody rational would commit a crime But enforcement isn’t free, making things interesting The basic economic model of crime and punishment makes the following key assumption: rational criminals. That is, we assume that potential criminals consider the costs of a crime – the chance of getting caught, and the severity of punishment – and weigh it against the benefits they get If enforcement were free, we could hire so many police that nearly all crimes were detected, and punish them severely; this would lead to nobody rational ever committing any crime The reason we don’t do this is enforcement costs.

Economic model of crime and punishment
To deter crime, we need to do two things: Catch offenders… …and punish them Catching a higher fraction of offenders is more costly Requires more police, more detectives, etc. More severe punishment also tends to be more expensive Most common punishments are fines and imprisonment Fines cost nothing – state even makes money But fines don’t always work, because not everyone can pay them Besides fines, most punishments are inefficient – make offender worse off, and are costly to state In order to deter crime, we have to do two things: catch offenders, and punish them. Catching a higher fraction of criminals is more costly: it takes more police officers, more detectives, and so on. More severe punishment also tends to be more expensive. The most common punishments are fines and imprisonment Fines aren’t costly at all – the offender pays $1000, the state receives $1000, the total social cost of the punishment is 0 However, fines don’t always work, because not everyone can pay them Suppose there was a crime we wanted to deter by imposing a punishment equal to a $100,000 fine A lot of the people who commit the crime may not have $100,000, so they would not face a sufficient deterrent. (this is the problem of “judgment-proofness” we discussed in tort law) So when fines are not sufficient, we have to turn to less efficient means of punishment, such as imprisonment This clearly has a social cost: going to jail makes the offender worse off (as planned), but it also makes the state worse off, since it has to build the jail, staff it, and so on So imprisonment is inefficient Most punishments (aside from fines) are inefficient.

Gary Becker, “Crime and Punishment: An Economic Approach”
Suppose some crime is punished by 20% chance of being caught and convicted, and a punishment equal to $20,000 We could save money by… Fire half the police and judges, so probability of being caught and convicted dropped to 10% Raise the punishment to $40,000 Punishing someone $40,000 may cost more than punishing them $20,000, but not more than twice as much… …and half as many people to punish So cost of punishing people would be same or lower But we’d save money on detection/apprehension Repeating the argument, the “optimal” system is an infinitely low probability of an infinitely severe punishment! There’s a famous paper by Gary Becker, on the syllabus, that launched the modern economic literature on criminal law Suppose we had a crime that was punished by a 20% chance of being caught and convicted and a punishment equivalent to $20,000 What would happen if we fired half the police and judges, so the chance of being caught and convicted dropped to 10%; but we raised the punishment to $40,000 Punishing someone to the extent of $40,000 might be more costly than punishing them to the extent of $20,000. But it wouldn’t be more than twice as costly And there’d be half as many people we needed to punish So the costs of punishment would be the same or lower On the other hand, we’d save money on detection/apprehension So we’d get the same expected punishment – and therefore the same deterrence effect – at a lower cost Repeating the same argument over and over, Becker concluded that the optimal criminal system was an infinitely low probability of an infinitely severe punishment. (Becker wasn’t really suggesting we should do this. For one thing, empirically, criminals respond more to probability of being caught than to severity of punishment And this is actually what Becker predicted – this has to be true “in equilibrium”, or else we could save money by doing what he said. But another problem: would juries really be willing to convict you of littering if the penalty were death?)

Marginal cost of deterrence
With rational criminals, raising the expected punishment should lead to fewer crimes being committed On a per-crime basis, raising either the probability of being caught or the severity of the punishment is costly But as we increase expected punishment… we get fewer crimes committed, and maybe fewer offenders we need to detect and punish So the cost of punishing those criminals we do catch could go up or down Which means the marginal cost of deterring another crime could be positive or negative! We argued before that increasing the expected punishment of a crime – by increasing the chance of being caught, or the severity of punishment – is more costly on a per-crime basis However, as we increase the expected punishment, this creates a stronger deterrence effect, which decreases the number of offenders we have to detect and punish. Which means that the total cost of administering this punishment might go down. (Or might go up.) So the marginal cost of deterring another crime could be either positive or negative! (For an example of how this works, suppose that at some cost, we could come up with a punishment so severe that nobody would ever commit the crime. Then we would never have to impose the punishment, and never have to solve any crimes, so the cost of deterrence would be very low.)

“The marginal cost of deterring another crime could be positive or negative”
Sample exam question (Fall 2008 final exam): Suppose a particular crime is always inefficient: it harms the rest of society $10,000 more than it benefits the criminal. Every time an offender is caught, he or she is tried, convicted, and imprisoned; the total (social) cost of trials and punishment is $100,000 per criminal caught. Recall that the aim of criminal law is to minimize the sum of three things: (1) the social cost of the crimes that are committed, (2) the cost of detection, and (3) the cost of trying and punishing the offenders who get caught. A city is considering hiring additional policemen dedicated to detecting this particular crime. This change would increase the fraction of offenders who get caught from 15% to 20%.

Social cost of each crime: $10,000 Cost of trial and punishment: $100,000 Increase fraction of crimes detected from 15% to 20% (a) Suppose this increase in detection would result in a decrease in the number of crimes committed from 1,000 a year to 700 a year. i. Calculate the effect that hiring the new policemen would have on the social cost of crimes committed. before: 1,000 X $10,000 = $10,000,000 after: 700 X $10,000 = $7,000,000 effect: $3,000,000 reduction in social cost of crime ii. Calculate the effect it would have on the cost of trying and punishing offenders. before: 1,000 X 15% X $100,000 = $15,000,000 after: 700 X 20% $100,000 = $14,000,000 effect: $1,000,000 reduction in cost of trials and punishment iii. From an efficiency point of view, what is the most that the city should be willing to pay for the new policemen? $4,000,000, since this is how much social costs are reduced by having higher detection

Social cost of each crime: $10,000 Cost of trial and punishment: $100,000 Increase fraction of crimes detected from 15% to 20% (b) Now suppose instead that the increase in detection would decrease the number of crimes committed from 1,000 a year to 900 a year. i. Calculate the effect that hiring the new policemen would have on the social cost of crimes committed. before: 1,000 X $10,000 = $10,000,000 after: 900 X $10,000 = $9,000,000 effect: $1,000,000 reduction in social cost of crime ii. Calculate the effect it would have on the cost of trying and punishing offenders. before: 1,000 X 15% X $100,000 = $15,000,000 after: 900 X 20% $100,000 = $18,000,000 effect: $3,000,000 increase in cost of trials and punishment iii. From an efficiency point of view, is there any positive amount that the city should be willing to pay for the new policemen? No – higher detection increases social costs, so even if the new policemen were free, from an efficiency point of view, we wouldn’t want them!

Social cost of each crime: $10,000 Cost of trial and punishment: $100,000 Increase fraction of crimes detected from 15% to 20% (c) Defend the following statement applied to this type of crime: “Even when detection is cheap, more detection is only efficient if the supply of crimes is elastic.” When the supply of crimes is inelastic, detecting more of them increases social costs – the number of crimes does not drop much, but more is spent punishing those who are caught. When the supply of crimes is elastic, detecting more of them reduces social costs – fewer crimes get committed, and fewer criminals need to be punished.

Optimal deterrence So depending on how much the crime rate responds to deterrence, increasing the likelihood of being caught could… Reduce social costs – by reducing both the number of crimes committed and the number of criminals we have to punish Increase social costs – by increasing the number of criminals we catch and have to punish (in addition to requiring more spending on detection) What does this say about the optimal level of deterrence? Or, if you prefer, the optimal level of crime? Or the optimal level of punishment?

Optimal punishment – example (Friedman)
Suppose there’s some crime for which expected punishment (probability X severity) equals $900 Suppose raising expected punishment from $900 to $901 would deter exactly one crime. Should we do it? Depends whether social cost of that one crime is more or less than the social cost of deterring it Suppose that… Raising expected punishment from $900 to $901 would cost $50 “Marginal crime” does $1,000 worth of damage To calculate social cost, also need to consider benefit to criminal Marginal crime gets committed when expected punishment is $900, but not when expected punishment is $901; so benefit to criminal is $900 So social cost of that crime is $1,000 - $900 = $100 If social cost of raising expected punishment enough to deter that crime is $50, we should do it! This brings us to a rather elegant theory of optimal punishment. Friedman motivates it with an example. Suppose there is some crime for which the expected punishment is set at $900 That is, every time the crime occurs, the offender is subject to a “lottery” – a chance of being caught, and a punishment if convicted – which he values as much as a $900 fine imposed with certainty Suppose we figured out that raising the expected punishment from $900 to $901 would deter one more crime. Should we do it? That depends on whether the social cost of raising the expected punishment from $900 to $901 is greater or less than the social cost of that marginal crime. Suppose that raising the expected punishment from $900 to $901 costs $50 more. (We argued that it could increase or decrease total costs; suppose here that it increases them.) And suppose that the marginal crime does $1000 worth of damage to people besides the offender. Since we want to consider total social costs, we also have to consider the benefit the offender got from the crime. (This may sound funny – we’ll come back to it in a bit.) How much value does the offender get from the marginal crime? The crime we’re deterring is the one that would have been committed when the expected punishment was $900, but will not be committed when the expected punishment is $901 So the value of this crime to the criminal must be between $900 and $901. So in this case, the social cost of the marginal crime is $1000 – 900 = 100, and the cost of deterring it is $50 – we can prevent a net loss of $100 at a cost of $50, so we should do it.

Optimal punishment – general theory
at efficient level of deterrence: Cost of deterring one more crime Social cost of marginal crime = Cost of deterring one more crime Harm to Victim Benefit to Criminal = – since “marginal criminal” is indifferent… Cost of deterring one more crime Harm to Victim Expected Punishment = – Now, more generally, if we are deterring the optimal amount of crime, it must be true that the net damage of one more crime is equal to the marginal cost to deter one more crime: Cost of deterring one more crime = Net damage By definition, net damage is the damage to the victim, minus the benefit to the offender, so Cost of deterring one more crime = Damage to Victim – Benefit to Offender We said that on the margin, the last crime we deter will be the one whose benefit to the offender is exactly equal to the expected punishment, so Cost of deterring one more crime = Damage to Victim – Expected Punishment Rearranging, Expected Punishment = Damage to Victim – Marginal Cost of Deterrence rearranging, Expected Punishment Harm to Victim Marginal Cost of Deterrence = –

At efficient level of deterrence,
Expected Punishment = Harm to Victim – Marginal Cost of Deterrence When deterrence is free, expected punishment = damage to victim Offender internalizes costs of his actions Just like with tort law, leads to only efficient crimes When deterrence is costly, expected punishment < damage to victim When preventing marginal crime is costly, we allow all efficient crimes… …and some slightly inefficient ones, because it’s cheaper to allow them then to prevent them When marginal cost of deterrence is negative, we should set expected punishment > damage to victim When preventing the marginal crime saves money (because there are fewer criminals to punish)… We prevent some efficient crimes too, because it’s cheaper to deter them than to allow them and have to punish them! What do we learn? When deterrence is free, expected punishment should equal damage to victim this causes the offender to internalize the costs of his actions this leads to only efficient crimes, just like in civil cases When the marginal cost of deterrence is positive – when raising expected punishment to deter one more crime is costly – expected punishment should be less than damage to victim That is, when preventing the marginal crime is costly, we allow all efficient crimes And we allow some slightly inefficient crimes, because preventing them would cost too much When the marginal cost of deterrence is negative – when raising expected punishment lowers costs, since there are fewer crimes to punish – expected punishment should be greater than damage to victim That is, when preventing the marginal crime saves money, we aim to deter all inefficient crimes And we deter some efficient crimes too, because deterring them is cheaper than having to punish them

Aside: why do we count the criminal’s benefit?
Why count criminal’s payoff when calculating social costs? We said fines cost nothing – make offender worse off, state better off Why not just say, screw the offender, fines raise money? And social cost of crime = damage to victim – benefit to offender Why not: by committing certain acts, you give up right to be counted? Friedman argues it this way: We want an economic theory for why things like murder and embezzlement should be treated differently than nuisances and torts If we start out by assuming they’re morally different, we’re assuming the answer to our question If we avoid making assumptions like that, and still come up with reasons they should be treated differently, then we’ve learned something It might seem odd that we continue to count the criminal’s costs and benefits when calculating social costs That is, we said that fines cost nothing – they make the offender worse off, and the state the same amount better off – rather than saying, screw the offender, fines generate revenue for the state Similarly, in calculating the social cost of a crime, we included the benefit to the offender, even allowing for the possibility of some crimes being efficient. You could argue that by committing certain acts, offenders basically give up their right to be counted. But Friedman argues it this way: We’re looking for an economic theory of why things like murder and embezzlement should be treated differently than things like nuisances, breach of contract, and torts If we start out by assuming they’re morally different – that someone breaching a good-faith contract remains a part of society, but someone embezzling his employer’s money has crossed a line and no longer counts – then we’re basically assuming the answer to our question If we can avoid making assumptions like that, just start with the idea of economic efficiency and still come up with arguments for why these actions should be treated differently, then we’ve actually proven something. How comfortable you are counting the offender’s benefit may also depend on the type of crime You might be very willing to concede that if someone breaks your car window to steal $50, the social cost of the crime is just the cost of the window You might be less comfortable with the idea that the social cost of a crime like murder or rape should include the utility the offender got from committing the act

What would efficient punishments look like?
Friedman: “[The system] would be designed to squeeze the largest possible fines out of convicted criminals, using the threat of more unpleasant alternatives for those who failed to pay. If the fines that victims can pay, even under such threats, are inadequate, they are supplemented by penal slavery for criminals who can produce more than it costs to guard and feed them, execution (with the organs forfeiting to the state) for those who cannot. Any prisons that do exist and do not pay for themselves are as unpleasant as possible, so as to produce as much punishment as possible per dollar of imprisonment cost. It is a consistent picture, and considerable parts of it can be found in the not very distant past, but not a pretty one.” We already discussed the fact that using fines as a punishment mechanism has very little social cost, and are likely the most desirable punishment for offenders who can afford to pay the fine. For those who cannot, imprisonment is costly, but could be made less costly by having prisoners do useful work This has happened in many places in the past – I remember hearing the irony a long time ago that New Hampshire license plates are stamped by prisoners, but bear the state motto, “Live Free or Die” – and still happens in some places Finally, given the excess demand for transplantable organs, execution could be made less costly for society (maybe even given a negative cost) by taking executed criminals’ organs for transplant (quote) He considers a few counterarguments. Incapacitation and rehabilitation might argue for prison over fines, but would not necessitate such unpleasant prisons Execution is very costly in the current system, due to extra legal protections, which may seem necessary because of its irreversibility and the horror of executing an innocent person And some elements of this may just seem wrong to people – forced labor, or confiscation of body parts.

The problem with efficient punishments
Punishments are designed to make someone worse off So if a punishment has social cost close to 0, it must make someone else better off With fines: state gets the benefit of the money But this creates incentive for abuse State benefits from convicting people! Drug cases and forfeiture Traffic cameras and yellow lights Friedman, however, offers another argument against “efficient” punishments: As punishments get more efficient, this means the state gets greater and greater benefits from punishing people (The punishment must hurt the people being punished, but have social cost close to 0, which means the state must be getting a benefit) But this gives a large incentive for abuse Already, some people feel far too much police effort goes into drug cases – in which forfeiture of dealers’ money and possessions is common – over other crimes that do not come with this “bonus.” We’ve been pretending the “state” is some perfect, benevolent institution, but in truth it consists of lots of individuals who respond to incentives; making imprisonment and execution too profitable for the state would lead to very creepy incentives. (Another example of this: on the syllabus, I put two links to news stories about towns using traffic cameras to catch red light violations. Once the cameras are in place, officials realize that catching people is profitable. This gives an incentive to catch more people. The first article lists six cities caught shortening the length of yellow lights beyond what is allowed by law, in order to “catch” more people running red lights.) (Friedman gives a fictional example where states can harvest organs when they execute someone; over time, more and more crimes become punishable by death.)

Deterrence

Do harsher punishments deter crime?
Hard to answer, because hard to separate two effects Deterrence When punishment gets more severe, crime rates may drop because criminals are afraid of being caught Incapacitation When punishment gets more severe, crime rates may drop because more criminals are already in jail Kessler and Levitt: natural experiment Voters in California in 1982 passed ballot initiative adding 5 years per prior conviction to sentence for certain crimes Found immediate drop of 4% in crimes eligible for enhanced sentences Cooter and Ulen discuss several empirical attempts to measure the extent to which punishment deters crime. As we mentioned Thursday, it’s often difficult to separate two separate effects: deterrence – when punishment gets more severe, crime rates may go down because people are more afraid of being caught incapacitation – when punishment gets more severe, say, through longer prison terms, so crime rates may go down just because more criminals are already in jail The early literature didn’t deal so directly with this problem, but did find that higher conviction rates and harsher punishments were associated with lower crime rates. Two studies, rather than looking at high-level crime rates, studied individual people who were likely to commit crimes: convicted criminals being released from prison Within this population, there was still a deterrence effect: Those with a high chance of being convicted again were arrested less in the months following release. One paper (by Dan Kessler and Steve Levitt) used a “natural experiment” to separate the deterrent effect from the incapacitation effect In 1982, voters in California passed a ballot initiative which added 5 years to sentences for certain serious crimes for each prior conviction by the criminal Any immediate change in crime rates should be due to deterrence, since the number of criminals in prison would only respond gradually They found an almost immediate 4% drop in the crimes that were eligible for these “sentence enhancements” So there did seem to be a clear deterrent effect The evidence on how crime rates respond to general economic conditions is more mixed The studies tend to use national economic conditions, but you’d expect crime rates to respond more to local conditions in high-crime areas

Probability versus severity
Empirically, crime levels more sensitive to probability of being caught, than to severity of punishment Might be that criminals discount future a lot, don’t care as much about last few years of a long prison sentence… …or, total cost of punishment may be more than “apparent” sentence Punishment = time in jail… …plus other costs – time spend in jail awaiting trial, money spent on a lawyer, stigma of being a convicted criminal… …which may not depend on length of sentence So 20% X (1 year in jail + C) > 10% X (2 years in jail + C) not because 20% of 1 year is worse than 10% of 2 years but because 20% of C is more than 10% of C Means Becker’s idea – tiny probability, very severe punishments – may not work in real life Not surprisingly, there is some empirical evidence that harsher expected punishments do have some deterrent effect However, the results are interesting: on the margin, crime levels seem to respond more to changes in the probability of getting caught, than to changes in the severity of punishment once you’ve been caught That is, doubling the chance of being caught has more of an effect on crime rates than doubling the fine or the prison term that convicted offenders will face. Friedman gives a simple argument for why this isn’t surprising: the total private cost of being punished is actually different from the “apparent” sentence If someone is convicted and sentenced to 1 year in jail, they likely already spent some time in jail awaiting trial, spent money on a lawyer, and will have to live with the stigma of being a convicted criminal These additional penalties are similar in magnitude regardless of the length of the prison sentence So 20% X (1 year + C) > 10% X (2 years + C) not because 20% of 1 year is worse than 10% of two years, but because 20% of C is greater than 10% of C. But the fact that people respond more to the probability of getting caught than to the sentence seems to suggest that Becker’s suggestion – very harsh punishments with very low probabilities – wouldn’t work well in practice (Also working against Becker is the fact that people might object to punishments that are way out of proportion with offenses If the chance of being caught jaywalking is very small, we might have to execute jaywalkers in order to deter jaywalking But do we really want to execute jaywalkers? And would juries really convict jaywalkers if the penalty was death?

Marginal deterrence Armed robbery vs. armed robbery plus murder
You break in to rob an isolated house, carrying a gun Someone wakes up and confronts you; what do you do? Punishment for murder is very severe If punishment for armed robbery is not so severe, you might leave them alive If punishment for armed robbery is very severe, you might be better off killing them Same argument against “three strikes” laws “As good be hang’d for an old sheep as a young lamb.” - old English proverb One simplification we’ve been making is that we’re only considering one crime at a time. But if different crimes are substitutes for each other, increasing the punishment on one may push offenders into committing the other crime instead. Take the example of armed robbery, and armed robbery plus murder You break into an isolated house, carrying a gun, intending to steal stuff Someone hears you and wakes up What do you do? If the punishment for armed robbery is much less severe than the punishment for murder, you might choose to run You take your chances on the owner calling the police and being able to identify you And you know that at least the punishment won’t be that drastic if you’re caught If the punishment for armed robbery is very high, you might be better off shooting the guy This reduces your chance of getting caught And you know that the punishment won’t be that different if you are caught This argument has been used to argue against “three strikes” rules, which mandate long (20 years or more) prison terms for third convictions on certain types of crimes. If someone is about to get caught for a relatively minor offense, facing a very severe punishment might make them more willing to kill someone to avoid being caught. (The logic is captured in the old proverb, “As good be hang’d for an old sheep as a young lamb.” In England, the penalty for either was death; since an old sheep has more meat and wool than a young lamb, since the penalty is the same, you’re better off stealing the more valuable animal.) (This is a useful way to think about the example where someone drove over a baby a second time. Implicitly, the “punishment” for killing someone was less than the punishment for injuring someone and having to pay for their medical care – so the marginal deterrence was actually negative!)

Punishment

Punishment In U.S., most crimes punished by imprisonment
Imprisonment has several effects: Deterrence Punishment Opportunity for rehabilitation Incapacitation When is incapacitation effective? When supply of criminals is inelastic (When there isn’t someone else waiting to take criminal’s place) And when it changes number of crimes a person will commit, rather than just delaying them Incapacitation is only effective under certain situations First, incapacitation only matters if an arrested criminal won’t be immediately replaced by someone else If you arrest the head of a drug gang, his top lieutenant might take over, and crime might go on apace Cooter and Ulen put it this way: incapacitation is effective at reducing crime when the supply of criminals is inelastic Second, incapacitation only matters if it changes the number of crimes a person will commit, rather than just delaying them until he gets out of prison If punishment for a third offense is very severe, most criminals might choose to only commit crimes until they’ve been caught twice A longer sentence for the first offense may delay the second round of crimes, but not eliminate it On the other hand, crimes that are caused by impulsive youth, and whose motivation fades with age, would be lowered by incapacitation.

Punishment Fines are efficient
No social cost But, greater threat of abuse, since state makes money Friedman: “In a world of efficient punishments, somebody gets most of what the convicted defendant loses. It is in that somebody’s interest to convict defendants, whether or not they are guilty.”

Punishment Other punishments tend to be inefficient
Make criminal worse off, costly to rest of society too Direct costs of holding someone in maximum-security prison estimated at $40,000/year In some states, prisoners do useful work Attica State Prison (NY) had metal shop Minnesota firm employs inmates as computer programmers Medium-security prisons in Illinois make marching band uniforms But legal limitations Death penalty extremely expensive under current system Longer cases, more jurors rejected, automatic appeals The direct costs of capital punishment are currently quite high, due to a number of legal protections: capital cases are longer more jurors are rejected, so more jurors have to be made available initially the trial is often divided into two phases, one for guilt and one for sentencing and defendants are also entitled to automatic appeals holding someone on death row is more expensive than keeping them with the rest of the prison population In the U.S., it’s currently more expensive to execute someone than to hold them in prison for life

Discretion in sentencing
: move from judicial discretion to mandatory sentencing most state and federal courts sentence mostly pinned down by crime and offender’s history Recent move in opposite direction MI, LA recently brought back discretionary sentencing MS brought back discretionary parole for nonviolent first-time offenders Various sentencing reforms in 18 other states Between 1980 and 1990, most state and federal courts moved from giving the judge wide discretion in sentencing toward mandatory sentencing In many cases, a combination of the seriousness of the crime and the offender’s past history pin down the exact punishment. Much of the increase in the prison population is traced to mandatory sentencing in drug cases. In recent years, due partly to overcrowded prisons and rising costs, there’s been some blowback. Michigan and Louisiana recently moved from mandatory sentencing back to discretionary sentencing Mississippi, which abolished discretionary parole in 1995, brought it back for nonviolent first-time offenders Eighteen other states have passed some sort of sentencing reforms.

Fines Western Europe: many crimes punished by fines
Textbook cites a study from 1977 examining certain crimes: 56% of selected defendants in England/Wales, 77% in Germany were punished only by a fine U.S. federal court: 5% of defendants punished only by a fine In U.S., fines are in dollars; in Europe, “day fines” Punishment = fixed number of days of salary So, rich pay bigger fines than poor

For example… Guy caught driving his Ferrari 85 mph in a 50 through a village in Switzerland Repeat offender Swiss speeding tickets proportional to wealth, driver was worth $23 million, so speeding ticket was $290,000

Should the rich pay bigger fines than the poor?
Some crimes have monetary benefits… Stealing $100 has same monetary benefit for rich or poor So penalty with same monetary equivalent – say, $1,000 – should have same deterrent effect …some have nonmonetary benefits Punching someone in the face in a bar might have same utility benefit for rich or poor Since rich have lower marginal utility of money, it would take a larger fine to have same deterrent effect But with costly enforcement, goal isn’t to deter all crimes Some examples: optimal to deter “most” crimes by both rich and poor, which requires higher fines for rich people Some examples: optimal to deter poor peoples’ crimes, not bother deterring crimes by the rich! Friedman describes a great back-and-forth between him and some of his students, on the question of whether the rich should face higher fines than the poor for the same offense. Friedman argued that fines should be the same for everyone A particular offense imposes some amount of external damage Setting punishment equal to damage leads to efficient choices, by both rich and poor Friedman’s students, though, pointed out that there are two different types of crimes: those with monetary benefits for the offender, and those with nonmonetary benefits. First, consider stealing $100 This has the same monetary benefit to someone rich or someone poor So a penalty with the same monetary equivalent – say, a $1000 fine – would have the same deterrent effect on the rich or the poor. But second, consider the joy of punching someone in the face who looked at you funny in a bar Suppose this has the same utility benefit for both the rich and the poor Because the rich have a lower marginal utility of money, it would take a larger fine to have the same deterrent effect But in fact, things are more complicated than that Remember that with costly enforcement, the goal is not to deter all crimes, but to deter most crimes – that is, deter crimes until it stops being worth it to deter the next one Friedman apparently had his students work through some examples They found that sometimes, it’s optimal to set fines to deter “most” poor peoples’ crimes and “most” rich peoples’ crimes – which involves setting higher fines for rich people But if deterring the rich is too costly, it’s sometimes optimal to deter poor peoples’ crimes and accept that the rich will do what they want! (Friedman gives two more complications, which could favor either higher or lower punishments for rich people.)

Society may have other goals besides efficiency Might place high value on law treating everyone the same… …even if we have to sacrifice some efficiency to achieve this Example: choice of a fine or jail time Tend to put low dollar value on time in jail – might be sentenced to a $5,000 fine or a year in jail Most people who can afford the fine will choose to pay; those who can’t, will go to jail So rich pay a small-ish fine they can easily afford, and poor go to jail This also brings us to another important point: Sometimes, society may have other goals in mind besides efficiency We’ve been using efficiency as our proxy for goodness throughout this course But it might be that in criminal cases, society puts a high value on treating everyone the same, even if this doesn’t lead to the most efficient outcomes. People might not object too heavily if rich people were charged higher fines than poor people for similar crimes People would probably object very strenuously if poor people were given more severe punishments than rich people for similar offenses That is, society might put a high value on “equality before the law,” and be willing to sacrifice some efficiency to get it. One example of this: certain crimes are often punished by a choice between a fine and jail time These tend to put a fairly low dollar equivalent to time in jail – for instance, you might be sentenced to a $5,000 fine or a year in jail The disutility of a lost year is pretty large – the likely result of this is that everyone who can afford the fine will pay it, and everyone who can’t, will go to jail But this means that rich offenders pay a small fine they can easily afford, and poor offenders spend a year in jail, which may seem objectionable. (In fact, since fines have a much smaller social cost than imprisonment, it may be preferable to push people toward paying fines rather than jail time, so a rule like this may make sense. But it still may seem objectionable to some people.)

Society may have other goals besides efficiency Might place high value on law treating everyone the same… …even if we have to sacrifice some efficiency to achieve this Example: choice of a fine or jail time Tend to put low dollar value on time in jail – might be sentenced to a $5,000 fine or a year in jail Most people who can afford the fine will choose to pay; those who can’t, will go to jail So rich pay a small-ish fine they can easily afford, and poor go to jail John Lott: equal prison terms for rich/poor may make sense The rich value their time more than poor… …but the rich have better lawyers, may be less likely to be convicted (Putting aside questions of equality, John Lott argued that equal punishments for the same crime might be appropriate when the punishment is imprisonment: Most crimes are punished by imprisonment The rich value their time more highly than the poor, so imprisonment may be a more severe punishment to the rich than to the poor This would suggest the rich could get shorter jail sentences and face the same deterrent But on the other hand, the rich, on average, have better lawyers So they get convicted with lower probability The two effects might balance out, so the same punishments might be appropriate.)

Stigma Stigma of having been convicted of a crime
You’re a corporate treasurer, and get caught embezzling One consequence: you go to jail for a year Another: when you get out, you can’t get another job as a treasurer Punishment = jail time + stigma Stigma as a punishment has negative social cost No wage at which firm would hire an embezzler as treasurer So getting hired by that firm would be inefficient But without the conviction, you might have gotten the job So knowledge that you’re an embezzler has value to society We said earlier that fines have no social cost, and most other punishments – jail, execution – have significant social costs Friedman points out one type of punishment that has a negative social cost, that is, that actually creates value. This punishment is the social stigma of having been convicted Suppose you’re a pretty good corporate treasurer, and one day, you get caught embezzling money from your employer One consequence is you go to jail for a year Another consequence is that when you get out, you find it hard to get another job as a corporate treasurer Your punishment consisted of both jail time and a stigma, that is, other peoples’ knowledge of your crime. Friedman points out two empirical studies by John Lott One studied white-collar criminals, and found that the lost income following conviction was a significant fraction of the punishment Another looked at corporations charged with cheating their customers, and found that the drop in stock value was many times larger than whatever actual punishment was imposed. Friedman claims that stigma as a punishment actually has negative social cost To show this, he proposes the following experiment First, get caught embezzling and go to jail Next, go interview for jobs Tell people that you’re well-qualified to be a corporate treasurer, but you recognize they may be hesitant to hire a convicted embezzler, so you’re willing to work for much less than the going rate Friedman predicts that there’s no price at which most firms would knowingly take on an embezzler as treasurer That is, the cost to them of hiring you (at any wage) is greater than the value to you of having the job This means that you getting hired by that firm would be inefficient Without the conviction, you might have gotten the job; with the conviction, you don’t So society is better off with you being known to be an embezzler (Or, the information that you are the type of person who embezzles is valuable to society.)

Stigma Stigma as a punishment Suggests that maybe…
Very efficient when applied to a guilty person Very inefficient when applied to an innocent person Suggests that maybe… criminal cases, where conviction carries a social stigma, should have higher standard of proof than civil cases, where it doesn’t Friedman points out that stigma has one other funny characteristic: As a punishment, it’s efficient when applied to a guilty person, but very inefficient when applied to an innocent person That is, if someone who’s not an embezzler gets convicted of embezzlement, they won’t get any jobs in the future, but this is inefficient This is one argument for why criminal cases, which tend to come with a social stigma, should carry a higher standard of proof than civil cases, which don’t come with the same stigma.

Death penalty In 1972, U.S. Supreme Court found death penalty, as it was being practiced, unconstitutional Application was “capricious and discriminatory” Several states changed how it was being administered to comply In 1976, Supreme Court upheld some of the new laws Since 1976, average of 41 executions per year in the U.S. Texas and Oklahoma together account for half Nationwide, 3,000 prisoners currently on death row Since 1976, 304 inmates on death row were exonerated, many more pardoned or had sentences commuted by governors Does death penalty deter crime? Evidence mixed. In 2003, outgoing governor of Illinois converted sentences of all 167 Illinois death row inmates to life in prison Numerous studies on whether the death penalty actually deters crime, results have varied widely Some have found no deterrent effect; others have found a strong one All the results appear to be very sensitive to the exact formulation of the empirical model (The results literally range from no effect at all on one end, to one study finding that each incremental execution prevents 150 murders, with many studies finding a much lower, but positive, level of deterrence.) One problem complicating things is that, in situations where the death penalty will almost certainly be applied, judges and juries are sometimes less willing to convict someone. There’s a recent paper by Steven Durlauf (here at Wisconsin) and three other authors They point out that existing results on deterrence are very sensitive to the exact details of the empirical model used Given that, they argue not that the results are useless, but that model uncertainty – that is, uncertainty over which model is correct – should be explicitly incorporated into the model They propose a way of doing this, and find a modest, though not particularly strong, deterrent effect. Durlauf’s explanation of the main results: If you believe the death penalty deters crime, the data won’t convince you it doesn’t; if you believe it doesn’t, the data won’t convince you it will. The direct costs of capital punishment are currently quite high, due to a number of legal protections: capital cases are longer more jurors are rejected, so more jurors have to be made available initially the trial is often divided into two phases, one for guilt and one for sentencing and defendants are also entitled to automatic appeals holding someone on death row is more expensive than keeping them with the rest of the prison population In the U.S., it’s currently more expensive to execute someone than to hold them in prison for life

Probability of death sentence, adjusted for other factors
Death penalty and race One concern about death penalty in U.S.: way it’s applied is racially biased McCleskey v Kemp (U.S. Sup Ct 1987) even solid statistical evidence of racial disparity does not make death penalty unconstitutional Probability of death sentence, adjusted for other factors RACE OF VICTIM Overall Black Other 18% 18% 21% Black RACE OF DEFENDANT Studies that look only at race of the defendant are mixed – some find that black defendants are more likely to be sentenced to death, others find that there’s no difference However, when the race of the victim and the defendant are both considered, a different picture emerges Example I’ll show is data from Philadelphia in 1980s and early 1990s, but lots of studies with similar conclusion: Death penalty is much more common for white victims than for black victims Lots of other factors also matter – how many victims, details of the crime, defendant’s history, etc. But if we control for all of that… Given a “type” of crime… blacks who kill whites are most likely to be sentenced to death… followed by blacks who kill blacks… followed by whites who kill whites… followed by whites who kill blacks And the difference is fairly stark However, since blacks are more likely to kill blacks, and whites more likely to kill whites, these differences are easy to miss Quoting a recent New York Times article ( The majority opinion in McCleskey was written by Justice Lewis F. Powell Jr. After he retired, his biographer asked Justice Powell whether, given the chance, he would change his vote in any case. “Yes,” Justice Powell said. “McCleskey v. Kemp.” 13% 3% 14% Other source: Death Penalty Information Center

Other topics

“Victimless” crimes Many crimes don’t seem to directly harm anyone
Cannibalism (when victim is already dead), organ sales But in a world where cannibalism is legal, the private benefit of murder is higher Might lead to more murders Same with organ sales Once human organs become valuable, tradable commodities, value of killing someone becomes higher May make sense to outlaw certain practices that do no harm themselves, but encourage other harms Friedman explains criminal laws against some “victimless” crimes – cannibalism (once someone is already dead), organ sales, etc. In a world where cannibalism is allowed, the private benefit of murder is higher; so murder might be more common Even more so with organ sales – once human organs become valuable commodities, the value of killing someone becomes much higher, and may outweigh the risk of punishment Thus, it may make sense to outlaw certain practices that do no harm in and of themselves, but encourage other harms. (One might be able to make a similar case for illegal drugs, although I’m not sure the case would be any stronger than with alcohol.)

Drugs Increasing expected punishment for dealing drugs will increase street price What happens next depends on elasticity of demand Casual users tend to have elastic demand If price goes up (or risk/difficulty in obtaining drugs goes up), demand drops a lot Addicts have very inelastic demand Price goes up, but demand stays about the same So expenditures go up Drug addicts who support their habits through crime, have to commit more crimes “Ideal” policy might be to raise price for non-addicts without raising price for addicts Cooter and Ulen discuss a bit the efforts to control illegal drug use They point out that increasing the expected punishment for selling drugs will increase its price What happens then depends on the elasticity of demand. Casual (occasional) drug users tend to have fairly elastic demand When the price of drugs (or the risk or difficulty in obtaining them) goes up, their demand goes down significantly So punishing drug sales has the desired effect. Addicts, on the other hand, tend to have very inelastic demand Since they’re physically dependent on the drug, they still want to consume nearly the same amount So price goes up, but demand stays nearly the same What changes is expenditures – addicts must pay more for drugs For those who support their habits via crime, this can lead to more crime. Cooter and Ulen point out that the “ideal” policy might be to raise the price to non-addicts without raising the price to addicts Several programs in Europe to just that Addicts can register with the government and receive drugs cheaply Those who do not register face higher street prices Not sure I see that happening here so much Cooter and Ulen also point out the difficulty in eradicating supply, since wiping out production in one country leads to more production in other countries And they discuss a bit the arguments for legalization in various forms

Guns Violent crime and gun ownership both high in U.S. relative to Europe, correlated over time But causation unclear Maybe more guns cause more crime Or maybe more crime leads more people to want to own guns U.S., Canada, and Britain have similar burglary rates In Canada and Britain, about 50% of burglaries are “hot” (occur when victim is at home) In U.S., only 10% of burglaries are “hot” So gun ownership doesn’t seem to change overall number of burglaries, but does change the composition guns Cooter and Ulen also spend a little time discussing gun control They point out that both violent crime and gun ownership are high in the U.S. relative to Europe, and tend to be correlated over time as well However, causation could go either way more guns might cause more crime or more crime might lead more people to want to own guns Empirical work has not demonstrated a clear link between handgun ownership and violent crime One interesting tidbit The U.S., Canada, and Great Britain have similar burglary rates In the U.S., where handgun ownership is generally legal, a much smaller fraction of these burglaries occur when the victims are at home In the U.S., “hot” burglaries are only 10% of total burglaries In Canada and Great Britain, around 50% So widespread gun ownership doesn’t seem to reduce the overall number of burglaries, but it changes the composition

Racial profiling Well known that black drivers are more likely to be pulled over and searched than white drivers Jan 1995-Jan 1999, I-95 in Maryland: 18% of drivers were African-American, 63% of searches One explanation: police hate black people Different explanation: race could be correlated with other things that actually predict crime Maybe people in gold Lexuses with tinted windows and out-of-state plates are more likely to be carrying drugs Police stop more gold Lexuses with out-of-state plates More African-Americans drive gold Lexuses How to tell the difference? Need more information about what drivers were stopped/searched What to do if you don’t have data?

Knowles, Persico and Todd, “Racial Bias in Motor Vehicle Searches: Theory and Evidence”
(2001, Journal of Political Economy) Game theory model of police and drivers Police get positive payoff from catching criminals, pay cost each time they stop a driver Drivers get some payoff from moving drugs, pay cost if they get caught Police may use lots of info (race plus other things) to determine who to pull over, but we (researcher) may not observe all that info

Suppose there’s a certain set of attributes (race plus other information) that make it very likely someone has drugs Then… Police will always search cars that fit those attributes So chance of being caught is very high for those drivers So drivers with those attributes will stop carrying drugs Only equilibrium is… For each set of attributes, some drivers carry, some don’t For each set of attributes, police search some cars, don’t search others

Mixed strategy equilibrium Police have to be indifferent between stopping and not stopping a given type of car/driver So if police see the cost as the same for all types… The payoff has to be the same, too Which means that in equilibrium, if police are not racist, the chance of finding drugs has to be the same for every car stopped Which means if we average over the other characteristics, black drivers should have the same probability of being guilty when they’re stopped as white drivers But this still might mean different search rates

Prediction: if police are not racist, each race could have different rates of being stopped/searched, but should have same rate of being guilty when searched Of drivers who were stopped in period they examine… 32% of white drivers were found to have drugs 34% of black drivers were found to have drugs Close enough to be consistent with “no racism” But only 11% of Hispanic drivers were found to have drugs, and only 22% of white women So police seemed to not be biased against black drivers, but to be biased against Hispanics, and white women? (If “guilty” defined as only hard drugs, or only felony-level quantities, then police seem to be biased against white drivers!)

Crime in the U.S.

Crime in the U.S. As of 2005, over 2,000,000 prisoners, nearly 5,000,000 more on probation or parole Up from ~500,000 in 1980 93% male In federal prisons, 60% are drug-related Incarceration rate of 0.7% is 7 times that of Western Europe Cooter and Ulen estimate social cost of crime $100 billion spend annually on prevention and punishment 1/3 on police, 1/3 on prisons, 1/3 on courts, prosecutors, public defenders, probation officers, etc. Estimate another $100 billion on private crime prevention Estimate total social cost to be $500 billion, or 4% of GDP Cooter and Ulen try to estimate the social cost of crime The easy part to calculate is money spent on crime prevention and punishment, which is over $100 billion a year. One third is on police One third is on prisons One-third is on courts, prosecutors, public defenders, probation officers, and so on. They estimate nearly another $100 billion of private money is spent on crime prevention, such as alarms and security systems, private guards, and so on. They don’t really give numbers for the direct cost of crimes – stolen property, injuries, and so on They estimate the total social cost of crime to be $500 billion, or 4% of GDP

U.S. incarceration rate in context
source: Center for Economic Policy Research

U.S. spending on corrections
source: Center for Economic Policy Research

Crime in the U.S. Crime rates (relative to population) in the U.S… Decreased steadily from mid-1930s to early 1960s Increased sharply in 1960s and 1970s In 1980s, Nonviolent crimes committed by adults dropped sharply Violent crimes committed by adults dropped slightly Violent crimes by young people went up Violent and nonviolent crime rates dropped sharply in 1990s, continued to drop more slowly since 2000 Nonviolent crime rate in U.S. now similar to Europe Criminals in the U.S… Disproportionally young males Crime rates generally follow trend in fraction of population age 14-25 Both violent criminals and victims disproportionally African-American Relatively small number of people commit large fraction of violent crimes Tend to come from dysfunctional families… …have relatives who are criminals… …do poorly in school… …be drug- and alcohol-abusers… …live in poor/chaotic neighborhoods… …and being misbehavior at young age source: Wikipedia downloaded 11/28/2010

Why did U.S. crime rate fall in 1990s?
What explains sharp drop in violent crime in U.S. in 1990s? Several explanations: deterrence and incapacitation decline of crack cocaine, which had driven much of crime in 1980s economic boom more precaution by victims change in policing strategies Donohue and Levitt give a different explanation: abortion (for change in policing strategies, see Gladwell “Tipping Point” among others)

Why did U.S. crime rate fall in 1990s?
Donohue and Levitt U.S. Supreme Court legalized abortion in early 1973 Number of legal abortions ~ 1,000,000/year (compared to birth rate of 3,000,000) Violent crimes largely committed by males of certain ages Donohue and Levitt argue legalized abortion led to smaller “cohort” of people in high-crime age group starting in early 1990s Evidence: Most of drop was reduction in crimes committed by young people Five states legalized abortion three years before Roe v Wade, saw drop in crime rates begin earlier States with higher abortion rates in late 1970s and early 1980s had more dramatic drops in crime from 1985 to 1997, no difference before Argue this explains 50% of drop in crime in 1990s Half of that from cohort size, half from composition The U.S. supreme court legalized abortion in early 1973 The number of legal abortions was on the scale of 1,000,000 a year (rising to 1.6 million by 1980), which is quite significant relative to a birth rate around 3,000,000 per year Violent crimes are largely committed by males of certain ages; Donohue and Levitt argue that legalized abortion led to a smaller “cohort” of people in the high-crime age group starting in the early 1990s. (A quick aside: birth rates, both total and relative to population, were indeed lower from 1973 to 1978 than they had been in previous years However, they had been dropping steadily well before 1973. Birth rates, both total and relative to population, were already substantially lower in the late 1960s and early 1970s than they had been in the 50s and early 60s Birth rate in 1972 was the lowest it had been since 1950, when population was much smaller. So even if the demographics of adolescent youth were a large part of the drop in crime, that’s not necessarily a direct result of legalized abortion.) Donohue and Levitt do offer some interesting evidence in support of their hypothesis First, most of the drop in crime rate was due to a drop in crimes committed by that age cohort – that is, the crime rates among “older” people did not fall in the 1990s Second, five states legalized abortion three years before Roe v. Wade; the drop in crime rates began earlier in those five states than in the rest of the country And states with higher abortion rates in the late 1970s and early 1980s did seem to have more dramatic drops in crime from 1985 to 1997, but no different crime patterns before that point Donohue and Levitt argue that legalized abortion explains 50% of the drop in crime in the 1990s of this 50%, half is due to its effect on the size of the cohort (just a reduction in the population of the high-crime age group) and the other half due to its composition: that those children not born were more likely to have been born to teenage mothers, single mothers, and the poor, and were therefore disproportionately likely to become criminals Obviously a controversial finding, and partially discredited – errors were found in the empirical work, some think the findings are wrong, others think the problems have been solved

Ordeals

Criminal law We’ve been focusing on optimal enforcement
How much should we invest in catching criminals? How should we punish them when we catch them? Very little on determining guilt or innocence Get the facts, decide how likely it is they committed the crime Based on relative costs of freeing the guilty and punishing the innocent, there’s some amount of certainty above which we punish

Motivation… http://www.youtube.com/watch?v=zrzMhU_4m-g
starting at 1:08 ending at 3:07

Peter Leeson, “Ordeals” (forthcoming, Journal of Law and Economics)
First in a series of papers on “the law and economics of superstition” “For 400 years the most sophisticated persons in Europe decided difficult criminal cases by asking the defendant to thrust his arm into a cauldron of boiling water and fish out a ring. If his arm was unharmed, he was exonerated. If not, he was convicted. Alternatively, a priest dunked the defendant in a pool. Sinking proved his innocence; floating proved his guilt. People called these trials ordeals. No one alive today believes ordeals were a good way to decide defendants’ guilt. But maybe they should.”

Ordeals Ordeals were only used when there was uncertainty about guilt or innocence Examples: hot water ordeal hot iron ordeal cold water ordeal Leeson’s point: ordeals may have actually done a pretty good job of ascertaining guilt/innocence hot water ordeal: fish a stone or a ring out of a pot of boiling water; if your hand gets burned, you’re guilty hot iron ordeal: carry a piece of burning iron a certain distance cold water ordeal: tied up, thrown in water (and pulled out); if you float, you’re guilty

Why would ordeals work to assess guilt or innocence?
iudicium Dei – Medieval belief that the God would help the innocent survive the ordeal, but not the guilty If people believe this, then… guilty won’t want to go through with the ordeal, will instead confess (confessing leads to a lesser punishment than failing the ordeal, plus you don’t burn your hand) the innocent agree to go through the ordeal, expecting to be saved by a miracle So administering priest knows if someone agrees to take the ordeal, he’s innocent… …and rigs the ordeal so he’ll pass

The keys to this working
Obviously, people have to believe that God will spare the innocent, judge the guilty Ceremony reinforced this by linking the belief to other religious beliefs Priests might have to let someone fail an ordeal once in a while, to keep people believing (Again, this was only done in cases where normal evidence was lacking, so unlikely to be “contradicted”) And, priests must have a way to rig the ordeals Leeson gives examples of how the ordeals were designed to make this easy: priests were alone before and after the ordeal, spectators couldn’t be too close, priests had to judge whether the person had passed or not, etc.

“Evidence” to support Leeson’s view
Historically, most people who underwent ordeals passed Data from 13th century Hungary: 130 out of 208 passed England, : of 19 for whom outcome was recorded, 17 passed And this seems to have been by design Other historians: “the ordeal of hot iron was so arranged as to give the accused a considerable chance of escape.” Others: “the average lean male has an 80% chance of sinking in water, compared to only a 40% chance for the average lean woman.” England, 84 men went through ordeals – 79 were given cold water ordeal 7 women went through ordeals – all were given hot iron ordeal

“Evidence” to support Leeson’s view
Ordeals were only used on believers “If the defendant was Christian, he was tried by ordeal. If he was Jewish, he was tried by compurgation instead.” Once Church rejected legitimacy of ordeals, they disappeared entirely

Leeson’s conclusion “Though rooted in superstition, judicial ordeals weren’t irrational. Expecting to emerge from ordeals unscathed and exonerated, innocent persons found it cheaper to undergo ordeals than to decline them. Expecting to emerge… boiled, burned, or wet and naked and condemned, guilty persons found it cheaper to decline ordeals than to undergo them. [Priests] knew that only innocent persons would want to undergo ordeals… [and] exonerated probands whenever they could. Medieval judicial ordeals achieved what they sought: they accurately assigned guilt and innocence where traditional means couldn’t.” Like I said, this was paper 1 out of 3 on law and econ of superstition The second paper is on “judicial battle” – before 1179 in England, property disputes would be settled by having the two litigants (or their representatives) literally fight each other The third paper is about gypsies

Econ 522 Economics of Law Dan Quint Spring 2013 Lectures 23 and 24.

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Econ 522 Economics of Law Dan Quint Spring 2013 Lectures 23 and 24.

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Presentation on theme: "Econ 522 Economics of Law Dan Quint Spring 2013 Lectures 23 and 24."— Presentation transcript:

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