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(2006) Economic Contributions to the dig of Crime

(2006) Economic Contributions to the dig of Crime

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Annu. Rev. Law Soc. Sci. 2006. 2:147–64doi: 10.1146/annurev.lawsocsci.2.081805.105856Copyrightc
2006 by Annual Reviews. All rights reservedFirst published online as a Review in Advance on August 22, 2006
E
CONOMIC
C
ONTRIBUTIONS TO THE
U
NDERSTANDING OF
C
RIME
Steven D. Levitt
1
and Thomas J. Miles
2
1
 Department of Economics, University of Chicago, Chicago, Illinois 60637; American Bar Foundation, Chicago, Illinois 60611; email: s-levitt@uchicago.edu
2
University of Chicago Law School, Chicago, Illinois 60637;email: tmiles@law.uchicago.edu
Key Words
deterrence, incapacitation, criminal justice
Abstract
Thepastdecadehasseenasharpincreaseintheapplicationofempiricaleconomic approaches to the study of crime and the criminal justice system. Much of this research has emphasized identifying causal impacts, as opposed to correlations.These studies have generally found that increases in police and greater incarcerationlead to reduced crime. The death penalty, as currently used in the United States, doesnot appear to lower crime. We also review the evidence on three other crime-relateddebates in which economists have played a central role: racial profiling, concealedweapons laws, and the impact of legalized abortion.
INTRODUCTION
The casual observer might expect that economics has little to contribute to the un-derstanding of criminal activity. Economics is a discipline seemingly concernedwithmarket-basedtransactionsinwhichpartiesactpurposefullytorealizetheben-efits of exchange. In contrast, many criminal acts, such as homicide and theft, areinherentlynonconsensual,evencoercive.Moreover,manycrimesappeartobeactsof impulse or emotion rather than the kind of rational decision making associatedwithmarketbehavior.Despitethisapparentmismatchofmethodologyandsubjectmatter, the economic approach has made significant contributions to the study of crime, and in the past decade, the pace of these contributions has accelerated. Inthis review, we examine some of the recent contributions that economics has madeto the understanding of crime, and, as much of the recent work by economists oncrime is empirical rather than theoretical, we emphasize empirical research overtheory. The discussion is organized around two broad categories of influences oncriminal behavior: (
a
) the criminal justice system and (
b
) other legal rules that, al-though distinct from the criminal justice system, nonetheless potentially influencecriminal behavior.Asaninitialmatter,itisworthclarifyingwhatwemeanbythephraseeconomicapproach. We believe four characteristics distinguish the economic approach to
1550-3585/06/1201-0147$20.00
147
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148
LEVITT
MILES
the study of crime from that of other social sciences. These characteristics are (
a
)an emphasis on the role of incentives in determining the behavior of individuals,whether they are criminals, victims, or those responsible for enforcing the law;(
b
) the use of econometric approaches that seek to differentiate correlation fromcausality in nonexperimental settings; (
c
) a focus on broad, public policy implica-tions rather than evaluation of specific, small-scale interventions; and (
) the useof cost-benefit analysis as the metric for evaluating public policies.
1
The emphasis on incentives in determining behavior arises from the assump-tion in economics that individuals maximize their utility subject to constraints.While counterexamples of this assumption surely exist, particularly in the contextof criminal behavior, a plausible generalization about human behavior is that mostindividuals do the best they can with what they have. Becker (1968) presentedthe first modern economic model of criminal behavior. In it, actors prospectivelycompare the expected costs and expected benefits of offending. They commitcrimes when the expected gains exceed the expected costs, and otherwise re-frain from criminal acts. The model incorporates the criminal justice system aspart of the offender’s expected costs, with policing influencing the probability of punishment and fines representing the criminal sanction. In the model, the crim-inal justice system therefore reduces crime through deterrence. Since Becker’sinfluential article, a large and active literature on the theory of deterrence hasdeveloped, with many elaborations and refinements of the core Becker model[see Kaplow & Shavell (2002) and Polinsky & Shavell (2006) for comprehensivereviews].The emphasis in economics on identifying true causal impacts of particularcrime-control policies also distinguishes it from other modes of research. Ques-tions, such as the impact of the size of police forces or the scale of imprisonmenton crime, are vexingly difficult to answer because crime rates influence the for-mation of public policies that combat crime. For example, if police reduce crime,butcrimeleadstothehiringofpolice,standardcorrelationalstatisticalapproachessuch as ordinary least squares estimation do not capture the causal impact of thesepolicies.Rather,theseestimatessufferfromwhateconometricianstermsimultane-ity bias. Despite this formidable challenge, economists have enjoyed significantprogress in recent years in addressing these issues. In so doing, they have foundvarious components of the criminal justice system to be effective, but not alwayscost-effective, means of reducing crime.The third distinguishing feature of the economic analysis of crime is the em-phasis on broad, public policy implications rather than on the assessment of par-ticular, small-scale policy interventions. Economists typically conduct analysesat the level of geographic aggregates, which serve as a proxy for individual be-havior and permit comparisons across jurisdictions with different criminal justice
1
Notalleconomicstudiesofcrimearedonebyeconomists.Anumberofresearcherswhoarenot economists have done research that fits our broad definition of the economic approach(e.g., Bushway 2004).
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ECONOMIC CONTRIBUTIONS TO THE UNDERSTANDING OF CRIME
149
policies. This emphasis on a broader level of analysis does not discount the impor-tance of context. Rather, for economists interested in testing Becker’s predictionthat criminal actors respond to incentives in the form of deterrence, the goal isto understand human behavior in general rather than in particular settings. Sim-ilarly, for economists interested in evaluating policy, a frequent objective is toprovide analysis that is sufficiently general to assist policy makers in numerouscontexts.The fourth defining characteristic of the economic approach to crime is theuse of cost-benefit analysis. In economic theory, a widely used normative crite-rion is Pareto efficiency, the condition in which no reallocation of resources canmake one person better off without leaving another person worse off. In practice,economists typically assess the desirability of a social program by weighing itscosts and benefits, relative to other alternatives. These comparisons necessarilyinvolve counterfactuals or predictions of the outcomes that would be achieved un-der the alternative, and what is especially useful in making these predictions arethearguablycausalestimatesprovidedbyempiricaleconomicanalysis.Moreover,cost-benefit comparisons express the many dimensions of a decision in a singlemetric of price or money. The idea of a common unit of measurement has itslimits; even many economists would resist the notion that all human values canbe reduced to monetary equivalents. Despite these limitations, cost-benefit anal-ysis furnishes a coherent normative criterion that is especially appropriate in thecontext of crime control, where the menu of policy alternatives is extensive andhundreds of millions of dollars are expended.Theremainderofthisreviewisstructuredasfollows.Thenextsectiondiscussesthe economic literature regarding the effectiveness of three specific aspects of thecriminal justice system: police, prisons, and capital punishment. In addition to ex-aminingtheimpactofthecriminaljusticesystemoncrimerates,someeconomistshave studied how the criminal justice system itself operates. Although a completereview of economic research on the operation of the criminal justice system is notpossible here, a topic that has received much attention recently is racial profiling,and thus the next section also describes the work on racial profiling. The thirdsection reviews the economic contributions of two determinants of crime outsidethe criminal justice system: the victim precaution of concealed weapons and theinfluence of legalized abortion. Both of these issues have been active areas of academic debate in recent years.
MEASURING THE IMPACT OF THE CRIMINAL JUSTICESYSTEM ON CRIME
TheBureauofJusticeStatisticsestimatesthatnearly$200billionisspenteachyearin the United States to catch, prosecute, and punish offenders (Bauer & Owens2004). Measuring the effectiveness of this spending is a critical input into thedevelopment of good public policy, both in terms of allocating criminal justice
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