The Economics Of Crime

The prevalence of crime as well as its persistent nature has attracted the attention of numerous psychologists, economists, philosophers and sociologists throughout our history. Sociologists like Durkheim have been of the view that crime is a natural phenomenon and cannot be completely wiped out. The harm inflicted on the society through criminal activity, affects efficient allocation of resources in an economy. Even the smallest of activities like petty theft entail some form of social or economic loss in the sense that offenders spend resources, time and effort in stealing another person’s income instead of creating their own. Loss of life or losing a limb involve even bigger economic, social and emotional losses. The theory of economics of crime focuses on minimizing the crime rate by using tools of applied economics and econometrics.

Several attempts have been made to apply the tools of applied economics to prevent such losses which initially began with Gary Becker in 1968. His analysis states that criminals act rationally and will only be incentivized to commit crimes as long as the total expected payoff from committing the said crime (which can be in utility or monetary terms) exceeds the legal alternative and the risk of getting caught. The theory, similar to rational choice theory, emphasizes on how each individual acts based on incentives. This model laid the foundation of the concept of economics in crime and provides useful insights like the equilibrium level of crime in an economy, optimum level of resources to be allocated towards law enforcement activities, the likelihood of convicting offenders, the punishment set for different crimes, and so on. Decisions related to crime control and prevention should be set according to the conclusions derived from applying the above theory.

Becker’s model is fundamentally similar to a typical market model in an economy, with a supply and a demand side. The supply side represents offenders and perpetrators, and focuses on the incentives and decision making of rational criminals in an economy. The demand side of the theory comprises of potential victims or individuals of the economy, who demand individual safety as well as the safety of others around them. Law enforcement services aid in achieving interaction between the demand and the supply side. Such services aim to prevent illegal or criminal activities with the use of various forms of punishment which would serve as deterrence measures. However, law enforcement services would only be deemed efficient as long as an additional rupee spent on preventing a crime leads to a reduction in the net cost of committing the crime by more than a rupee. In other words, spending tens of thousands of rupees to catch a petty thief is considered to be economically inefficient. 

Psychologists and economists have attempted to modify and apply the theory in numerous conditions and economies. One such example is the case of gun control

laws around the world. Studies state that criminals are more likely to win a violent contest against victims, since they have more reason to learn how to use a gun than an average citizen. Thus, easy availability of guns actually benefits the criminals, and not those who use it for self – protection. While many researchers like John Lott and David Mustard refute the statement and suggest that crime rates decline with lenient gun laws, data collected suggests otherwise. There has been a direct correlation between how lenient the gun control system is and the number of homicides in countries like Brazil, Honduras, US, etc. To prevent such crimes, Becker’s model ought to be used, where the basic principle is not to stop individuals from committing crime, but to make it unprofitable. In the above case, if prices of guns are hiked or heavy taxation is imposed, it will reduce the demand for keeping guns, which will inherently reduce gun violence.

The theory of economics of crime, though highly useful, has been criticized and scrutinized by psychologists and sociologists on various grounds, the biggest one being the assumption of criminals being rational. The arguments against such an assumption is based on the criticisms of rational choice theory, and emphasize on the role of emotions while committing a crime. Studies by various economists like Lindegaard, Bernasco, Jacques, and so on suggest that the role and effect of emotions like fear and anger cannot be ignored, and that motives are highly subjective and situational. While this is true, it fundamentally comes down to the concept of utility. These emotions are also ruled by the utility maximising nature of human beings, which can be in any form. Thus, the theory of economics of crime will continue to be valid as long as the utility maximising nature of individuals is kept in mind while formulating policies.

The economic approach to criminal behaviour has provided useful insights for policy makers for decades, but it is still not as widely adopted as it should be. Taking India for example, where the police force is trained to focus on catching criminals instead of tracking stolen property. This leads to the formulation of black money at the cost of the state. If the theory of economics of crime is applied in such a country and positive as well as negative incentives are set effectively, it can potentially lead to a substantial decrease in both crime rate as well as the level of inequality in the economy. Thus, if crime is to be tackled, then the paradigm of crime being an economic activity needs to be factored in the society, to ensure a safer, better world for human kind.

Author: Dev Seth
B.Sc. Economics (Hons.) Symbiosis School Of Economics

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