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The economics of crime

By Mike Adeyemi | A Chartered Economist | | +2348035139846

One wished-for definition is that a crime or offence (or criminal offence) is an act harmful not only to some individual but also to a community, society or the state ("a public wrong"). Such acts are forbidden and punishable by law.
A crime is an offence that merits community condemnation and punishment, usually by way of fine or imprisonment. This is different from a civil wrong (a tort), which is an action against an individual that requires compensation or restitution. Criminal offences are normally prosecuted by the State or the Commonwealth, whereas it is usually up to an individual to take a civil action to court. It is also possible for an individual to begin criminal proceedings, but this is very rare.

Some matters, such as assault, can be both crimes and civil wrongs at the same time. The police can prosecute for assault and the victim can take civil action to recover money (or some other kinds of compensation) for any injury suffered.
It is not always easy to tell when something is a crime. A person who takes money without permission commits a criminal offence, whereas a person who fails to pay back money commits a civil wrong (not a crime). Although a civil action can be commenced to recover the money, the borrower can only be prosecuted for a criminal offence.

We can use one of economics assumptions, the self-interest hypothesis to analyze crime problems and preclusion. Let’s presume that criminals are normal people who commit crimes when it is in their self interest to do so. A criminal calculate the costs and benefits of each crime, and commits those crime for which the benefits exceed the costs ceteris paribus – in other words, crime is an economic activity.
My simple hypothesis is that, a criminal calculate cost (c) and benefit (b) of criminal activities and commit those crimes where B >C. According to this hypothesis, crime is an economic activity and the criminal behaves like any other entrepreneur .If we go more deeply into the cost and benefit calculation, we can analyze the situation in more facet. The benefits are what the criminal hopes to realize by the activity.

In crimes involving the theft of property, this is comparatively easy. The anticipated benefit is the anticipated market value of the take. For other crimes such as vandalism, illegal parking, or littering, we have to ascribe some value to the activity. These values may be nonmonetary in nature; for example, the time saved by parking illegally, rather than searching for a legal parking spot.
The cost is the penalty (P) adjusted for the probability (π) that the criminal will be caught and the penalty will be imposed. So, we need to compare B to P. (π). In other words, if the fine for littering is #500 but on the average, one will be caught and fined for littering only one every 500 times, the expected cost of littering is #1(500 X 1/500). The economic model I have just developed thus tells us that if some people get more than #1 worth of benefit or from littering, they will litter. This model can best be applied to crimes more serious than littering.
If we want to do something about the amount of armed robbery that is taken place in our society, we can analyze this crime and its prevention in terms of this model. There are three elements to this model. It says that crime depends on the benefits from the activity so, ceteris paribus, as the value of the loot goes up, so will the amount of robbery. Two, it says that as the penalty goes down (with no change in the probability of being caught), criminal activity will go up. Third, it says that if the probability of being caught goes down, ceteris paribus, the amount of robbery will go up.
We can now advise the policy makers. If we want to decrease the amount of armed robbery, we can do any or some combination of all three things. We could decrease the potential take, or profit. Second, we could increase the penalty. We could say that if a person is caught robbing a petrol station and using a gun during the robbery, the criminal will have the hand that is holding the gun cut off. Now, increasing the penalty is sometimes difficult because society deem some penalties too severe. In some countries, the hands of robbers are cut off; but in Nigeria, penalties for robbery usually are limited to prison sentences. This result is predicted by a model which says as the potential penalty rises, criminal activity will fall. Of course, we might object to this policy even if it does reduce crime.
But economic model are positive, telling us only what the consequences of such policy will be. They don’t say if it’s good or bad in moral sense. This analysis has probably led to the conclusion that economist would argue that the death penalty deter crime. If you are a doubter, answer this question: Would you ever litter if the probability of getting caught was one in five hundred and the penalty was death? You would have to place a high value on being able to litter, or a low value on your own life, if you answered in the affirmative.
However, some people argue that murderers have such a distorted view of reality that they underestimate the probability of being caught, convicted, and sentenced to death. These people argue that the death penalty provides little deterrence. More importantly, just because positive economic theory says the death penalty deters crime, which does not mean that you, or anyone else, have to support the death penalty if you object on moral, or normative, grounds.
"Empirically, capital punishment is too infrequent to have a measureable effect on the crime drop. Criminological, the existence and use of the death penalty may not even create the deterrent effect on potential offenders that lawmakers hoped when enacting such laws." I strongly noted that criminals do not consider the consequences of their actions, particularly when the consequence is rarely applied, as in the case of the death penalty.
"Much psychological and sociological research suggests that many criminal acts are crimes of passion or committed in a heated moment based only on immediate circumstances, and thus potential offenders may not consider or weigh longer-term possibilities of punishment and capture, including the possibility of capital punishment."
The last option which could reduce the robbery rate would be to increase the probability of arrest and conviction of would–be robbers. This might be accomplished by more police, speedier justice, television cameras in banks, or other similar measures. No Law No Crime.

Mike Adeyemi is a Chartered Economist (+12308035139846)
The economics of crime Reviewed by nationalmoonlight on October 15, 2017 Rating: 5

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