Economics Crime

The Economics of Crime
The Economics of Crime presents a review of economic scholarly research in the

ever-growing field of crime and punishment. Without using graphs or mathematical
equations, Winter combines theory and empirical evidence relating to public policy
concerns over a wide range of controversial topics such as the death penalty, racial
bias in the criminal justice system, gun control, the war on drugs, fines versus
imprisonment, policing tactics, and shaming punishments.
In addition to offering an updated and expanded coverage of these, and other topics,
this second edition is more international in scope, with the inclusion of studies that use
data from Italy, Australia, the U.K., Singapore, Brazil, and others. Also included is a
brand-new chapter on the application of behavioral economics to crime and punish-
ment, providing readers with a succinct introduction to this modern and increasingly
important approach to economic issues.
By requiring no previous knowledge of economics, this book continues to be the
perfect choice for students new to the study of economics and public policy, whether it
is in the discipline of economics, political science, criminology, law, or any other field
that is concerned with issues in crime and punishment. Furthermore, due to its acces-
sibility, The Economics of Crime can be enjoyed by anyone who follows current public
policy debate over some of society’s most contentious issues.
Harold Winter is Professor of Economics at Ohio University. His previous books

include The Economics of Excess: Addiction, Indulgence, and Social Policy (2011),
Trade-Offs: An Introduction to Economic Reasoning and Social Issues (2013), and
Issues in Law and Economics (2017).
The Economics of Crime
An Introduction to Rational Crime Analysis
Second edition
Harold Winter
Second edition published 2020
by Routledge
2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN
and by Routledge
52 Vanderbilt Avenue, New York, NY 10017
Routledge is an imprint of the Taylor & Francis Group, an informa business
© 2020 Harold Winter
The right of Harold Winter to be identified as author of this work has been asserted by
him in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act
1988.
All rights reserved. No part of this book may be reprinted or reproduced or utilised in
any form or by any electronic, mechanical, or other means, now known or hereafter
invented, including photocopying and recording, or in any information storage or
retrieval system, without permission in writing from the publishers.
Trademark notice: Product or corporate names may be trademarks or registered
trademarks, and are used only for identification and explanation without intent to
infringe.
First edition published by Routledge 2008
British Library Cataloguing-in-Publication Data
A catalogue record for this book is available from the British Library
Library of Congress Cataloging-in-Publication Data
Names: Winter, Harold, 1960- author.
Title: The economics of crime : an introduction to rational
crime analysis / Harold Winter.
Description: Second edition. | Abingdon, Oxon ; New York, NY : Routledge, 2020. |
Includes bibliographical references and index. |
Subjects: LCSH: Crime--Economic aspects.
Classification: LCC HV6030 .W56 2020 | DDC 364.2--dc23
LC record available at https://lccn.loc.gov/2019025384
ISBN: 978-1-138-60752-1 (hbk)

ISBN: 978-1-138-60753-8 (pbk)
ISBN: 978-0-429-46715-8 (ebk)
Typeset in Times New Roman

by Taylor & Francis Books
To Thomas Ruchti for once telling me he thought my crime course was
awesome.
And to the memory of my sister Pam (1951–2017) who always went to a

bookstore to order a copy of each book I wrote, even though she got a free
copy from me.
Contents
Preface viii
Acknowledgments x
1 Rational crime basics 1

2 Crime and the certainty of punishment 11
3 Severity of punishment I: fines and efficient punishment 22
4 Severity of punishment II: prison and crime 34
5 Severity of punishment III: the death penalty and crime 52
6 Racial bias and the criminal justice system 68
7 Private crime deterrence 85
8 The war on drugs 100
9 Behavioral crime and punishment 112
10 Economists and crime 130
Index 135
Preface
It has been over a decade since I completed the first edition of The Economics of
Crime. After that much time, I was not expecting to write a second edition, but when
an editor at Routledge asked me if I was interested in pursuing such a project, I was
excited to have that opportunity. I have been teaching crime and punishment topics in
various policy courses over the past few years, and after continuously updating my
lecture notes, I felt I had a lot of new and interesting material to add to the book, and I
would enjoy looking for even newer material.
As is always the case when writing a book, reviewers often suggest topics that should
be included. In approaching this edition, I needed to consider how different I wanted it
to be from the first one. Although I had several interesting suggestions to consider, I
decided to stick with the basic structure of the first edition, at least in terms of topics
covered. I feel it is best to go with the material I am most comfortable with, and I
believe this book covers the key topics that should be included in any book on the
economics of crime.
While I am sticking with the basic structure of the first edition, I have made many
changes to this edition. The most obvious improvement is that I have expanded, and
updated, every chapter to include studies published since the first edition. I have also
added two new chapters. Chapter 2 is now devoted to the certainty of punishment. This
topic was briefly covered in the previous edition in the first chapter, but there have been
so many recent studies, especially on policing, that I thought the topic deserved a
dedicated chapter. There is also a brand-new chapter on behavioral crime and punish-
ment. Chapter 9 serves as a brief introduction to the way behavioral economics can be
applied to several topics presented in the previous, more traditional, chapters of the
book.
One other key change to this edition is that I have added a discussion of numerous
empirical studies that use international data. In the first edition, when my editor asked
me to add some international material just before the book went to press, I mostly
included some anecdotes and news items about crime from countries other than the U.S.
In this edition, I removed many of those stories and added a discussion of formal studies
that use data from such countries as Italy, the U.K., West Germany, Brazil, Singapore,
and so on. Although the bulk of economic studies in the field of crime and punishment
still rely on U.S. data, this edition definitely offers an improvement over the first in terms
of its international coverage.
One other change I made is that I removed the chapter on reducing crime through
various social programs. Alternative ways of reducing crime other than through the
criminal justice system is a hugely important topic in the economics literature, but it is
Preface ix
a topic I have little experience with as I do not have time to cover it in my courses.
Furthermore, I feel that it deserves a lot more attention than can be provided with just
a single chapter, as evidenced by my weak presentation of that material in the first
edition. My hope is that the addition of the behavioral chapter in this edition makes up
for the removal of the social programs chapter.
As with all my books, my goal is to present the material in an interesting and
accessible way, without relying on graphical or mathematical analysis. Other than the
occasional numerical example for ease of exposition, this book is made up entirely of
words. When I discuss empirical studies, the focus is mostly on the qualitative results,
but I will discuss quantitative results when it enhances the presentation of the material.
In Chapter 2, I present a very brief primer on empirical analysis, but I do not discuss
econometric techniques with respect to individual studies. I do, however, discuss the
empirical strategies employed when they rely on clever economic intuition.
As with the first edition, this book is meant to be a supplemental text, offering stu-
dents a short but serious discussion of the key topics in the economics of crime and
punishment. Professors who decide to adopt this book can couple it with a number of
different teaching styles. If your students have no or little background in economics,
this book can facilitate classroom discussion of the topics included. If your students
have economic training, you can use this book as an intuitive introduction to the topics
you want to cover more formally in class.
Finally, I strive to present the material in a clear and non-biased way. In other words,
my own opinion of the issues I discuss is of no importance here. I simply want to present
the economic approach to crime and punishment, and let the readers decide for them-
selves how best to consider this approach when evaluating social policy. Economics is
only one of many approaches to analyzing social issues, but it is an interesting and,
oftentimes, unique approach that allows for public policy analysis to be more compre-
hensive than it otherwise would be.
Acknowledgments
My first debt of gratitude goes to my editor Andy Humphries who single-handedly

resurrected this project from the grave. There was an aborted attempt at a second edi-
tion several years ago, and after that experience I never planned on returning to this
project. Andy thought it was worth pursuing a second edition, and he remained
enthusiastic about the project from start to finish. I’d also like to thank Christiana
Mandizha for her tremendous help in getting the manuscript ready for production, and
everyone else at Routledge who I have not met or communicated with, but had a hand
in bringing this project to its completion. I’d also like to thank my copy editor Dawn
Preston for all her assistance.
I’ve had a number of my best students helping with various aspects of this book. I’d
like to thank Audrey Dlugosz, Amber Ford, Timothy Grady, and Jeremy Hill for their
research assistance. I’d especially like to thank Nathan Abraham for his enthusiasm
and hard work in his role as my main research assistant.
I’ve benefited from discussions with several colleagues over the years. I’d like to
thank Joshua Austin, Glenn Dutcher, and Cortney Rodet for helpful comments. A very
special thanks goes to Thomas Ruchti for always making me feel like I know what I’m
talking about.
Finally, I’d like to thank my eight-year-old son Thomas for forcing me to answer his
never-ending questions about absolutely everything. And of course, always, there is Jenn.
1 Rational crime basics
I would like to introduce you to the economic analysis of crime by asking you the fol-
lowing question: would you rather live in a society in which murders occur, or in a
society in which murders never occur? This is a question that requires no expertise to
answer, and there is no right or wrong answer because I am asking you to state a per-
sonal preference. So, how would you answer this question? If you are like nearly every
person I have asked this question, you will give your answer quickly and confidently—
you prefer to live in a society in which murders do not occur. I, on the other hand, am
not like nearly every person I have asked this question. I would prefer to live in a
society in which murders occur. Actually, I would much prefer to live in such a society.
This is not because I am a murderer, or a sadist, or uncaring about the human tra-
gedies associated with murder. My response stems from one simple fact—I think about
these issues using economic reasoning.
Evidence (and common knowledge) suggest that crime is not a rare occurrence in the
United States (U.S.). In 2016, there were 1,248,185 violent crimes (murder and non-
negligent manslaughter, rape, robbery, and aggravated assault) reported in the U.S., for
a violent crime rate of 386.3 per 100,000 population. There were also 7,919,035 prop-
erty crimes (burglary, larceny, and motor vehicle theft), for a property crime rate of
2.451 per 100,000 population. Specifically for the crime of murder, there were 17,250
murders reported in 2016, for a murder rate of 5.3 per 100,000 population (FBI Uni-
form Crime Report, 2016; see the appendix to this chapter for crime definitions). And
murder is not just an American phenomenon. For example, if we consider murder rates
for several other nations, we find those with higher, and those with lower, rates when
compared to the U.S. rate. In the United Kingdom (U.K.) and Japan, the murder rates
were, respectively, 1 per 100,000 in 2016 and 0.5 per 100,000 in 2008. In Brazil and
South Africa, the rates were, respectively, 21 per 100,000 in 2011 and 31.8 per 100,000
in 2010 (U.K.: Office for National Statistics; South Africa: Africa Check Fact Sheet;
Japan and Brazil: UN Data).
Maybe, in some utopian sense, it would be preferable to live in a murder-free world.
But from a more pragmatic perspective, exactly what sort of society would we have to
live in to drive the murder rate down to zero? Would we have to live in a society depicted
in George Orwell’s novel 1984 in which the actions of every citizen are tightly controlled
and thoroughly monitored by the state? Could there be some way to identify potential
murderers at an early age and intervene to either somehow “re-educate” them or remove
them from open society? Obviously, regardless of how noble is the goal of reducing the
murder rate to zero, it is simply not likely to be technically possible to do so. Instead,
how about considering a more modest goal, such as reducing the murder rate by 10
percent? Furthermore, let’s assume that this goal is technically possible to achieve. There
is still one more question I would like to ask—is this goal desirable?
In the first economics class I took in college, the professor defined economics as the
study of the allocation of scarce resources. This leads to the first important concept in
thinking about crime from an economic perspective: because it requires costly resources
to reduce crime, the optimal amount of crime is likely to be positive. For example,
reducing the murder rate by 10 percent would require a tremendous amount of
resources. As a society, we would have to spend more on apprehending and convicting
murderers, as well as on punishing them. Is this worth doing?
In justifying this additional expenditure, two factors are worth considering. First, do
we get a good return for our money? That is, if we spend a dollar on crime reduction,
do we get at least a dollar back in benefits? And second, what else could we spend the
money on? That is, could we get a better return spending a dollar on something other
than reducing the murder rate, such as national defense, health care, education, main-
taining infrastructure, and so on? If it is not worth the additional expenditure, for either
reason, it is not economically efficient to reduce the murder rate by 10 percent. In other
words, it is optimal to have a positive murder rate.
Thus, economists generally don’t view crime as something society would be better off
without. We understand that it would not be technically feasible to eliminate all crime
and, even more important, it would not be desirable to do so because of the substantial
resource costs associated with crime prevention. The key economic issues concerning
the costs of reducing crime center around the amount of resources that should be
devoted to fighting crime, and how these resources should be divided between the dif-
ferent branches of the criminal justice system such as the police, the courts, and the
prison system. But whenever economists discuss the costs of enacting social policy, a
discussion of the benefits cannot be far behind.
The rational criminal

Offsetting the costs of crime prevention are the benefits in terms of reduced crime rates.
Although there are several avenues in which crime rates can be reduced, of foremost
interest to economists is what is known as the deterrent effect, that is, the ability of
social policy to increase the cost to the criminal of committing crime, thus reducing the
incentive to commit crime. This leads to the second important concept in thinking
about crime from an economic perspective: economists typically assume that criminals
are rational in the sense that they weigh the costs and benefits of their actions and act
accordingly. This implies that crime can be deterred by social policies that manipulate
the probabilities of arrest and conviction, and by policies that determine the nature and
severity of punishment.
The concept of the “rational” criminal is often a tough sell to the noneconomist. But
the concept of rationality does not require that all criminals make explicit calculations of
the costs and benefits of their actions. Rationality does not even require that most crim-
inals make these kinds of calculations. As long as some criminals are somewhat rational,
we then can ask whether crime rates can be reduced when more resources are devoted to
increasing the probabilities of arrest and conviction, or by increasing the severity of
punishment. The core economic prediction is quite simple: by increasing the costs of
committing crime, fewer crimes will be committed. Whether this theoretical prediction is
supported by empirical evidence is an entirely different matter that will be discussed
Rational crime basics 3
throughout much of the rest of this book. But before discussing this evidence, it will be
useful to take a closer look at what is meant by the rational criminal.
Let’s take a trip back to the American Old West. Three bank robbers are holding up
a bank and threatening the employees and customers at gun point. After the leader of
the gang grabs all the money and heads for the door, one of the robbers points his gun
at a teller and is about to shoot. Just at the last second, the leader of the gang slaps the
arm of his partner and prevents him from killing the teller. The startled partner looks
at the leader and asks: “Why did you do that? They hang us for murder the same as
they hang us for robbing banks. Why leave any witnesses?” To that the leader replies:
“The posse rides harder for murderers.”
That clever verbal exchange takes place in a movie (unfortunately, one for which I
cannot remember the title). I think it is an inspired piece of screenwriting because it
accurately depicts some very subtle trade-offs that criminals may consider when they
are planning to commit crimes. It is obvious that criminals rob banks to steal money.
Offsetting this financial benefit, however, are the costs of bank robbery, such as pur-
chasing weapons and tools, and incurring planning costs. Furthermore, and possibly
most important, bank robbers must contend with the risk of being caught and
punished.
Put yourself in the boots of the bank robber with the itchy trigger finger. You realize
that if you are caught, you will face the death penalty regardless of whether you kill the
witnesses. Because the punishment for the less severe crime of bank robbery is the same as
for the more severe crime of murder, you reason that there is no additional deterrent effect
dissuading you from committing murder. As a matter of fact, you cleverly conclude that if
you kill the witnesses, you may face a lower probability of being convicted if you are
eventually apprehended. So, you raise your gun to start killing witnesses as you feel that at
this point, you have nothing to lose and may have something to gain.
The leader of the gang, however, adds another layer of complexity to the problem.
While there are two forces enhancing the incentive to commit murder—the punishment
is the same for bank robbery and murder, and live witnesses increase the chance of
conviction—the leader recognizes that the probability of being apprehended may also
depend on the nature of the crime. He believes that the crime of murder may provide
the posse with the incentive to track the murderers relentlessly, whereas the crime of
bank robbery may lead the posse to give up the chase after a short time. This is very
sophisticated thinking by both bank robbers. They recognize that punishment does not
occur 100 percent of the time. Instead, they have partitioned the punishment into its
two basic components: the severity of punishment, and the certainty of punishment.
This partition represents an important aspect of the economics of crime and
punishment.
The severity of punishment refers to the form of the ultimate sanction a criminal
faces. A prison sentence or a monetary fine are two very common sanctions. The longer
the prison sentence, or the larger the fine, the more severe is the punishment. There are
a variety of other sanctions that can be used, ranging from less severe punishments such
as probation or community service, to more severe punishments such as torture or the
death penalty.
The certainty of punishment, on the other hand, takes into account the probabilities
of apprehension and conviction. To manipulate these probabilities, the authorities can,
for example, hire more police officers, use more sophisticated investigation techniques,
devote more resources to prosecuting cases, and so on. Regardless of how severe a
punishment is, to be enforced it requires the criminal to be apprehended and convicted.
To an economist, then, the term “punishment” has little meaning if it does not expli-
citly include both the severity and certainty components. Instead, when discussing the
concept of criminal punishment, the term economists typically refer to is known as the
expected punishment. A simple numerical example will help illustrate this important
concept.
Assume that the criminal faces a sanction that is a monetary fine of $1,000, but only
faces a 50 percent chance of being apprehended and convicted (that is, the severity of
punishment is $1,000 while the certainty of punishment is 50 percent). The criminal
does not simply face a $1,000 punishment. Instead, the criminal faces an expected (or,
an average) punishment of (50 percent)($1,000) = $500. Notice that the criminal is
never actually punished by the exact amount of $500. The sanction will either be
$1,000 or nothing. Because the sanction is not incurred with 100 percent certainty, the
criminal confronts only an expected punishment that is less than the actual sanction.
Perhaps a more intuitively pleasing way of thinking about the concept of expected
punishment is to consider a criminal who repeatedly undertakes an illegal activity and
faces a 50 percent chance of a $1,000 punishment each time. With every undertaking of
the illegal activity, the criminal will either pay a fine of $1,000 or face no sanction at
all. Over many periods of time, however, the $1,000 fine will be incurred in 50 percent
of the periods, and not incurred in the rest of the periods. On average, then, the per-
period fine is $500, even though the criminal never pays an actual fine of $500.
Returning to the Old West bank robbers, what the two robbers disagree about is the
magnitude of the expected punishment. They both recognize that the ultimate sanction
they face is the death penalty, but one believes they face a lower certainty of being
punished if the witnesses are killed. The other, however, believes they face a higher
certainty of punishment if the witnesses are killed. Regardless of who is correct, it is
this concern over both the certainty of punishment and the severity of punishment that
is at the core of rational crime analysis. To put it succinctly, economic models of crime
predict the following: an increase in the expected punishment lowers the crime rate,
while a decrease in the expected punishment raises the crime rate.
As mentioned above, rational crime analysis does not require all, or even most,
criminals to behave with an explicit understanding of the expected punishment they
face. Individuals who commit spontaneous crimes of passion, or individuals who are
intoxicated, may not (at the moment the crime is committed) be too concerned with the
expected punishment they face. There also may be individuals who are poorly informed
about the expected punishment they face and possibly grossly underestimate it. There
may even be individuals who, perversely, do not consider the expected punishment to
be a cost. For example, in some violent street gangs “serving time” may be considered
a badge of honor, or part of an initiation process. Thus, it is easy to imagine that many
criminals may not respond to changes in the expected punishment.
Even if no criminals are rational in the sense that their behavior can be manipulated
by changes in the expected punishment, this does not eliminate the value of rational
crime analysis. What it does suggest is that if the deterrent effect does not exist (or even
if it does), it is worth considering how else social policy can be designed to reduce
crime rates. A prison sentence that doesn’t deter crime may still reduce crime by inca-
pacitating potential future criminals for the lengths of their sentences. Better educa-
tional and job market opportunities may steer potential criminals away from future
illicit behavior. There are many avenues in which crime rates can be reduced, and all of
them can still be subject to an economic cost-benefit rational analysis.
Nevertheless, to the extent that the expected punishment does provide a deterrent
effect, this can have important implications when designing social policy to reduce
crime rates. For example, consider a city in which the mayor is concerned with the high
rate of automobile drivers who run red lights. What sort of policy suggestions can the
mayor consider for reducing these incidents? More police officers may be hired, or
traffic light cameras may be installed, to increase the probability of apprehension. Both
of these options may be quite costly to implement, but they may greatly enhance
deterrence. Alternatively, stiffer fines can be issued to drivers who are caught, without
devoting more resources to apprehension. This may be a low-resource cost option for
the city to adopt, but how effective will it be in terms of deterrence if the certainty of
being caught still remains very low? How large must the fine be set to achieve the
desired level of deterrence? Can other sanctions achieve the desired goal, such as loss of
driver’s license, community service, or even a prison sentence? Rational crime analysis
is well suited to consider these trade-offs between the resource costs of these policy
options and their potential deterrence benefits.
At the end of the day, however, no amount of economic theory can address the
pragmatic problem of quantifying the costs and benefits of reducing crime rates. Even
if it is reasonably straightforward to calculate the costs of implementing some policy
option, such as hiring more police officers or installing traffic light cameras (and note,
not all policy options have costs that are easily calculated), quantifying the deterrent
effect is a much more difficult task. Furthermore, while there is no doubt that imple-
menting policy does require the use of costly resources, there is doubt that a deterrent
effect even exists in many settings. It may appear that it is commonsense to believe that
harsher (expected) punishment can have a dampening effect on the crime rate, but
ultimately it is an empirical issue.
Before turning to these empirical issues in subsequent chapters, one last fundamental
concern in approaching crime from an economic perspective needs to be addressed.
Whenever social policy is discussed, it is important to be clear of the social objective that
is underlying the justification for implementing policy. It may seem obvious that, in this
setting, the social objective is to reduce crime. But it is far from obvious precisely what
that means. What should be counted as costs and benefits in a crime policy cost-benefit
analysis? Should we weigh the costs of criminal behavior against the benefits that accrue
to the criminal? Might it be possible that there are some crimes society actually wants to
encourage? With this in mind, we turn now to the concept of efficient crime.
The benefit of crime

When you were younger, did you ever dream of growing up and becoming a police
officer? Well, I am now going to give you a brief opportunity to fulfill that dream.
Pretend that you are a state trooper whose current duty involves monitoring a stretch
of highway that has a speed limit of 55 m.p.h., but often attracts drivers who tend to
far exceed that limit. You are cleverly parked out of the view of oncoming traffic, and
you have your radar detector at the ready. All of a sudden a car goes racing by in
excess of 90 m.p.h., and you immediately leap into action. In a matter of minutes, you
have the driver pulled over to the side of the road and you are ready to confront the
culprit.
At more than 35 m.p.h. above the speed limit, you are expecting to present the driver
with a very expensive ticket. Furthermore, you want to make it clear to passing drivers
that this stretch of the highway should not be used for speeding, so you expect to take
your time before allowing the driver to continue on his way. But as you confront the
driver, you are in for a surprise. He informs you that his pregnant wife has just gone into
labor, and he was speeding to get her to the hospital as quickly as possible. Now what
would you do?
While you are pondering that story, let me offer a slight change in the scenario.
Assume that everything is exactly the same as above except for one detail: the driver
gives you a different explanation for why he was speeding. Instead of rushing his
pregnant wife to the hospital, he was rushing with his wife to get to his favorite res-
taurant for lunch. He explains that he only has one hour for a lunch break, and he
would not have enough time to eat at his favorite restaurant without speeding to get
there. Would you respond differently to this excuse than you would to the previous one?
I can’t say for sure how you would respond in each case, and I have no idea how a
real state trooper would respond (although according to websites providing excuses for
getting out of speeding tickets, pregnancy is considered one of the best). Nevertheless,
how you believe each situation should be handled can provide us with a starting point
for thinking about the concept of efficient crime. When I present these two scenarios to
my students, the very common responses I get is that they would be unlikely to ticket
the driver with the pregnant wife, and certain to ticket the driver rushing to lunch.
Actually, my students often display anger toward the hungry driver and recommend he
be fined severely. What may account for these differences?
The risks associated with driving 35 m.p.h. over the speed limit—the chance of get-
ting into an accident and the extent of the damages—are not likely to depend on the
reason why the driver was speeding. Thus, the cost to society of these two scenarios can
reasonably be thought of as being identical. So, if you answered that you would treat
these two cases differently, we cannot easily attribute your answer to differential costs.
Instead, it is likely that, at least implicitly, you thought of these two cases as having
different benefits of speeding.
From a commonsense point of view, if you are going to accept an excuse for speeding,
taking a pregnant wife to the hospital sounds much better than rushing to get to your
favorite restaurant for lunch. Thus, you may infer that the benefit to the driver of
speeding in the first case is more substantial than the benefit of speeding in the latter. In
fact, if you excuse the driver in the first case, you are implicitly saying that the benefit of
driving outweighs its cost and you don’t deem it necessary to punish the driver in this
case. Your approach to ticketing speeding drivers, then, is to fine those drivers who
cannot adequately demonstrate that the benefits of their actions outweigh the costs.
If you accept this explanation for why you excuse the driver with the pregnant wife
from getting a speeding ticket, you are, at least implicitly, making an extraordinary
claim: a criminal should not be punished if the benefit of committing the crime outweighs
the cost of the crime. Yet why would anyone other than a criminal be concerned with
the benefit of committing a crime? Is it sound social policy to excuse criminals who can
justify their actions from a cost-benefit perspective? You seem to think so if you
excused the driver and his pregnant wife.
But maybe you think this is silly. Obviously, the nature of the crime must be taken
into account. Thinking about the benefit of speeding is one thing, but thinking about
the benefit of violent crimes such as armed robbery, rape, and murder is another thing
entirely. Even if you are willing to tolerate excessive speeding in some circumstances,
you would never be willing to tolerate murder, regardless of the magnitude of the so-
called benefits to the murderer. Then again, how should we think about the act of
killing in self-defense? On one hand, self-defense is not defined as a crime, so it is an
act society accepts and even encourages. On the other hand, why not define self-defense
as a crime, but one in which the benefit of the crime to the murderer exceeds its costs?
Either way, society will accept the act of murder in this circumstance.
Deciding on whether to punish based on the benefit a criminal receives may seem a
bit strange, yet economists routinely include such benefits in their analyses. In his
seminal paper on the economics of crime and punishment (1968), Nobel Laureate Gary
Becker took it for granted that a criminal’s benefit of committing a crime would count
as part of what society cares about, that is, the benefit would be included in what
economists refer to as the social welfare. Years later, David Friedman expressed Beck-
er’s idea in this way:
If instead of treating all benefits to everyone equally we first sort people into the
deserving and the undeserving, the just and the unjust, the criminals and the vic-
tims, we are simply assuming our conclusions. Benefits to bad people don’t count,
so rules against bad people are automatically efficient.
(Friedman, 2000, p. 230)
But is it economic reasoning that leads to the conclusion that a criminal’s benefit
should be included in the social welfare?
Nobel Laureate George Stigler, Becker’s colleague at the University of Chicago when
the crime and punishment research was undertaken, has this to say about the issue:
Becker introduces as a different limitation on punishment the “social value of the

gain to offenders” from the offense. The determination of this social value is not
explained, and one is entitled to doubt its usefulness as an explanatory concept:
what evidence is there that society sets a positive value upon the utility derived
from a murder, rape, or arson? In fact, society has branded the utility derived from
such activities as illicit. It may be that in a few offenses some gain to the offender is
viewed as a gain to society, but such social gains seem too infrequent, small, and
capricious to put an effective limitation upon the size of punishments.
(Stigler, 1970, p. 527)
Becker and Stigler were two of the greatest economic thinkers of the twentieth century,
yet they disagreed on how to value, from a social perspective, the benefit a criminal
receives from committing crimes. So, is this disagreement important to the pragmatic
implementation of social policy to reduce crime rates?
Consider a crime that imposes a $10,000 cost upon society. If we think about this
single crime in isolation, depending on our social policy objective we may want to
devote no more than $10,000 in resources to deter it. Now assume that the criminal
reaps a $7,000 benefit from committing the crime. If we count this $7,000 as a social
benefit (as Becker and Friedman suggest), the net cost of the crime is only $3,000. By
counting the criminal’s benefit, we may want to devote no more than $3,000 to deter
the crime. Simply put, if criminal acts have offsetting benefits to the costs they impose
on society, it may be desirable to devote fewer resources to crime deterrence (what
Stigler refers to as a “limitation on punishment”).
Even if you accept this policy conclusion, it would be very difficult to implement in
the real world. In justifying fewer resources devoted to crime deterrence, could you ever
imagine a politician calling for a study to measure the benefits a rapist or murderer
reap from their crimes? Or even worse, can you see a politician argue that if the benefits
to the criminal outweigh the costs to society, that crime should actually be encouraged
(or at least not discouraged by devoting resources toward deterrence)?
For example, what if we change the numbers from above such that the criminal reaps
a benefit of $12,000 instead of $7,000? Technically, the commission of a crime that
imposes a $10,000 cost on society now yields a net social gain of $2,000. In other
words, this is an example of an efficient crime—society is better off with the crime than
without it if we include the criminal’s benefit in the social welfare. In this case, an
economist may argue that no resources should be used to deter this crime. If you accept
this line of reasoning, the problem is, of course, how do we know which crimes are
efficient and which are not?
Let’s return to the speeding driver example. How can the state trooper decide which
excuse for getting out of a speeding ticket yields a benefit that exceeds the cost of speed-
ing? One useful lesson economic reasoning can provide in this setting is that the state
trooper doesn’t need to know anything about the magnitude of the benefit to the driver for
speeding. What he shouldn’t do, however, is excuse the behavior. Instead, he should write
a ticket in every case in which he pulls over a driver who is speeding. Who will speed in
this case? Only drivers who value speeding more than the expected punishment. In this
sense, the expected punishment can be thought of as a price the criminal must face to
commit crimes. So, how can this price be set?
While determining an optimal expected punishment can be a complicated calcula-
tion that depends on several factors (discussed in more detail in Chapter 3), it is public
policy that makes that determination. If society values the benefit to the criminal, the
level of expected punishment will be lower than if society does not value that benefit. It
is important to note, however, that while it is a fact that criminals receive benefits from
criminal activity (or why else commit crimes), it is only an opinion as to whether those
benefits should count as part of the social welfare.
Deciding on what counts or does not count as part of social welfare is a subjective
matter. If you sincerely believe that it is wrong to base social policy partly on the ben-
efits that accrue to criminals, that is your opinion. If you believe that benefits should be
counted in some situations but not in others, that too is your opinion. There is no such
thing as a “correct” social objective. Being inclusive (as Friedman suggests) is a way of
thinking about social issues, but it is not the way. What ultimately matters is this: what
policy conclusions can be drawn from considering different social objectives? If you
truly believe that the social cost of crime is higher than I believe it to be (because I
count the benefits to criminals, for example), the efficient crime policy for you is likely
to use more resources than will the efficient crime policy for me. With different objec-
tives there are different optimal solutions.
In all, the authorities have many options to consider when attempting to reduce crime
through the setting of the expected punishment. From an economic perspective, the three
key concepts are: the cost imposed on society by the criminal act; the cost of
the resources used to maintain the expected punishment; and, if desired, the benefit to
the criminal of committing the act. The relationship between each of these three
concerns and the desired expected punishment is straightforward. The desired expected
punishment for a particular crime should be greater the more costly the crime, the less
costly the resources used to maintain the expected punishment, and the less benefit there
is to committing the crime. To put it succinctly—the expected punishment should be
based on a consideration of the costs and benefits of crime deterrence.
For example, consider the crime of speeding once again. The more dangerous we
believe speeding to be in terms of injuries and lives lost, the greater should be the
expected punishment. If there is a technological change that makes enforcing the speed-
ing laws less costly (such as digital photography that allows accurate detection of
speeding with fewer resources devoted to manpower), the greater should be the expected
punishment. And to the extent that we believe some drivers exceed the speed limit for
valid reasons, the lower should be the expected punishment.
Lastly, it should be emphasized that when thinking about crime deterrence from an
economic perspective, it is possible to consider crime not only being underdeterred, but
also overdeterred. No matter how heinous the crime, the optimal amount of crime is
likely to be positive. But this is not to be confused with believing that crime is a “good”
thing. Because we live in a world of scarce resources, it will be too costly to deter all
crime. And with every dollar spent on crime deterrence being one less dollar spent
elsewhere, it is possible to be in a situation where too much is being spent on fighting
crime. Throughout much of the rest of this book, we will often examine whether
resources are being used efficiently to deter crime.
Appendix: crime definitions (FBI Uniform Crime Report, 2009)

Murder and nonnegligent manslaughter. The willful (nonnegligent) killing of one human
being by another. Deaths caused by negligence, attempts to kill, assaults to kill, sui-
cides, and accidental deaths are excluded. The program classifies justifiable homicides
separately and limits the definition to: (1) the killing of a felon by a law enforcement
officer in the line of duty; or (2) the killing of a felon, during the commission of a
felony, by a private citizen.
Forcible rape. The carnal knowledge of a female forcibly and against her will. Rapes
by force and attempts to rape, regardless of the age of the victim, are included. Statu-
tory offenses (no force used—victim under age of consent) are excluded.
Robbery. The taking or attempting to take anything of value from the care, custody,
or control of a person by force or threat of force or violence and/or by putting the
victim in fear.
Aggravated assault. An unlawful attack by one person upon another for the purpose
of inflicting severe or aggravated bodily injury. This type of assault usually is accom-
panied by the use of a weapon or by means likely to produce death or great bodily
harm. Simple assaults are excluded.
Burglary (breaking or entering). The unlawful entry of a structure to commit a
felony or theft. Attempted forcible entry is included.
Larceny theft (except motor vehicle theft). The unlawful taking, carrying, leading, or
riding away of property from the possession or constructive possession of another.
Examples are thefts of bicycles, motor vehicle parts, and accessories, shoplifting,
pocket-picking, or the stealing of any property or article that is not taken by force or
violence or by fraud. Attempted larcenies are included. Embezzlement, confidence
games, forgery, check fraud, etc. are excluded.
Motor vehicle theft. The theft or attempted theft of a motor vehicle. A motor vehicle
is self-propelled and runs on land surface and not on rails. Motorboats, construction
equipment, airplanes, and farming equipment are specifically excluded from this
category.
References
Becker, G.S. (1968) “Crime and Punishment: An Economic Approach,” Journal of Political
Economy, 76: 169–217.
Friedman, D. (2000) Law’s Order, Princeton, NJ: Princeton University Press.
Stigler, G.J. (1970) “The Optimum Enforcement of Laws,” Journal of Political Economy, 78: 526–536.
2 Crime and the certainty of punishment
The economic analysis of crime deterrence often begins with an examination of how the
different components of expected punishment have an effect on crime rates. As discussed
in Chapter 1, the theoretical prediction is simple—by increasing the expected punish-
ment that criminals face, the authorities can raise the cost of criminal behavior and deter
crime. But the theoretical prediction offers little in terms of policy advice until the theory
is supported, or refuted, by empirical evidence. In addressing this issue, there is a large
body of empirical economic research that attempts to test the rational crime model in
various ways. In this chapter, studies that focus on the probability of apprehension and,
to a much lesser extent, the probability of conviction, will be discussed. The next three
chapters will focus on various aspects of the severity of punishment such as fines, prison,
and capital punishment. But before the results of any empirical studies are presented, it
will be useful to provide an introduction to empirical analysis.
A brief primer on empirical analysis

As an instructive introduction to empirical analysis, consider a simple example that, for
the time being, abstracts away from the topic of crime and punishment. Let’s say you
want to conduct an empirical study to compare the annual salaries of high school
teachers in the state of New York versus those in the state of New Jersey. You collect
data on hundreds of teachers in each state and find that the average salary in New
York is $5,000 higher than the average salary in New Jersey. This leads you to the
seemingly obvious conclusion that New York high school teachers are better paid than
their New Jersey peers. But what precisely accounts for this difference?
As of now, the only information you have to explain the difference in salaries is the
state in which the teacher is employed. But a teacher’s salary may depend on many
other things, such as: number of years of experience; number of years of education;
public or private school teacher; inner-city or suburban school; grade level taught;
subject taught; union status; age; gender; race; and possibly several others. All of these
other things are known as confounding factors. Perhaps your finding is largely
explained by the fact that, in your particular sample, the New York teachers have (on
average) more years of experience than their New Jersey counterparts. If somehow you
can compare the salaries for teachers in New York who have the same number of years
of experience as the teachers in New Jersey, you may find that the difference in annual
salaries changes. Even if you could do this, however, you would still have to contend
with the many other confounding factors that could be explaining the difference in
salaries.
Now assume that you can collect all the relevant data on the confounding factors
introduced above. With these data, you can use a statistical technique known as
regression analysis to more carefully examine the differences in salaries across the two
states. At its most basic, when you estimate a simple regression equation you are able
to isolate the effect you are interested in studying. With the salary example, you can
now distinguish between the salaries of New York and New Jersey teachers by con-
trolling for all the other variables (thus, these variables are known as control variables).
In other words, this statistical technique forces all the other variables to be identical for
all of the teachers included in the data set, and allows the researcher to focus on the
state in which the teacher is employed as explaining a difference in the salaries.
For example, if you find with regression analysis that New York teachers do have a
larger salary than New Jersey teachers, you can now say that this holds with all else
equal. That is, the difference in salaries cannot be explained by differences in any other
variables that are being controlled for in the regression equation. Furthermore, with a
single regression equation, you can isolate any other effect you are interested in study-
ing. You can determine the effect of gender on salaries, all else equal, or the effect of
race on salaries, all else equal, or the effect of years’ experience on salaries, all else
equal, and so on. Thus, a simple regression equation can yield a lot of information.
When presenting the regression results for a specific variable of interest, it is common
for researchers to discuss the sign of the effect (positive or negative), the magnitude of
the effect (large or small in an absolute sense), and, most important, the statistical
significance of the effect (typically, whether the magnitude is “different” from zero). For
example, after controlling for all the other variables, you may find that the effect on
salary of teaching in New York as opposed to New Jersey is positive, that is, the New
York teachers have higher salaries. Furthermore, you may calculate the magnitude of
this difference to be equal to $1,000. But it is important to note that the $1,000 is only
an average amount, so there is some statistical spread around that value. This means
that you may have to qualify your statement by saying something like you are 95 per-
cent confident that the average salary in New York is between $500 and $1,500 larger
than the salary in New Jersey. In this case, you can say the salary in New York is sig-
nificantly larger (in a statistical sense) than the salary in New Jersey because the spread
around the average does not include the amount zero. If the spread does include the
amount zero (for example, -$1,000 to +$3,000), then your average result may be posi-
tive, but it would not be considered statistically significant.
An empirical crime study

As an example of how economists approach the empirical analysis of crime and pun-
ishment, I will discuss a study published in 1991 (Grogger, 1991). While this study is
slightly outdated, it provides a simple yet highly instructive example of the basic
empirical approach to crime. This example can then be used as a template in which to
discuss far more up-to-date studies in this, and succeeding, chapters.
The study attempts to explain variation in criminal activity by using a data set drawn
from arrest records maintained by the California Department of Justice. The sample
consists of nearly 14,000 individuals who were arrested at least once during the years
1984 to 1986. While criminal activity can be a very difficult variable to measure accu-
rately, the study uses as a proxy the number of times an individual was arrested in
1986. One shortcoming of this proxy (as the study correctly acknowledges) is that the
Crime and the certainty of punishment 13
number of arrests not only depends on the behavior of the criminal, but also on the
efforts of the police. With this caveat in mind, the important aspect of a proxy is that it
correlates with the variable it is attempting to measure, and it is likely that arrests are
positively related to criminal acts.
As for the control variables, the study follows the common approach of distinguish-
ing between three main categories—deterrence variables, economic variables, and
demographic variables. Examples of some of the variables the study includes can illus-
trate the role of these different categories. From a deterrence perspective, criminal
activity is predicted to be inversely related to the expected punishment a criminal faces.
As a proxy for the probability of conviction, a measure of the certainty of punishment,
the study uses a variable that is defined as an individual’s number of prior convictions
divided by the number of prior arrests (prior meaning before 1986). To account for the
severity of punishment, a variable defined as the average length of prison sentence
served since age 18 is used.
In the economic variables category, the usual prediction is that criminal activity is
inversely related to legitimate labor market opportunities. That is, the longer the indi-
vidual is employed, and the more income that is earned, the less criminal activity is
predicted to occur. The study measures length of employment by the number of quar-
ters employed in 1986, and income earned by reported income in 1986. Finally, in the
demographic variables category, typical predictions are that criminal activity is posi-
tively related to minority status and inversely related to age. The study includes vari-
ables that take into account race (Black or not), ethnicity (Hispanic or not), and age
(older versus younger cohort).
With these control variables of interest (as well as others not discussed here), the
study offers several main results. First, the study finds that an increase in the certainty
of punishment through the probability of conviction provides a greater deterrent on
criminal activity than does an increase in the severity of punishment through the length
of the prison sentence. Second, while the employment variable does not appear to have
a significant effect on criminal activity, the income variable does. Quantitatively, a $100
increase in annual income leads to, on average, a 1 percent reduction in the number of
arrests. Finally, the study finds that Blacks and Hispanics are arrested 66 percent and
52 percent more often than Whites, respectively, and that individuals in the older
cohort are arrested 14 percent less often than those in the younger cohort.
Police manpower and crime

One of the most obvious ways in which the authorities attempt to reduce crime is
through the hiring of police officers. Not only are the police responsible for appre-
hending suspected criminals, police presence in and of itself acts as a direct deterrence.
Thus, the simple prediction of more police less crime is often at the core of an economic
analysis of the relationship between the probability of apprehension and the crime rate.
What is far from obvious, however, is precisely how to verify this prediction through
empirical analysis.
The relationship between police and crime provides an excellent example of the
problem of reverse causation. It would not be difficult for an empirical analysis of this
relationship to find the following result: the more police that are hired, the higher the
crime rate. This result, at first blush, may suggest that it is not sound policy to hire
police officers to reduce crime, but this interpretation of the result may be seriously
flawed. The problem is that there are two simultaneous predictions concerning police
and crime: the more police that are hired, the less crime occurs; and, the more crime
that occurs, the more police that are hired. This second prediction is what complicates
the empirical analysis.
In cities in which there are rising crime rates, one common public policy response is
to hire more police officers. This creates a positive link between police and crime. If this
link is overlooked when undertaking an empirical analysis, finding that more police
leads to more crime is not actually refuting the prediction that more police causes less
crime. What is needed is a way to distinguish between the two opposing effects so that
the reverse causation problem can be properly taken into account. To do this, a variable
must be found that affects the size of the police force but does not affect crime rates.
One important study (Levitt, 1997) attempts to isolate the deterrent effect of an
increased police force by looking at police hiring in 59 cities (with populations of
250,000 or more for the sample period 1970 to 1992) during a mayoral or guberna-
torial election year. One advantage incumbent candidates have over challengers is that
incumbents can actually enact public policy, as opposed to simply promising to enact
policy if elected. Thus, during election years, incumbents may decide to enact “tough
on crime” policies, not because of a rising crime rate, but because they are trying to get
reelected. If part of the policy is to hire more police officers, this creates a link between
police and crime that is not caused by changing crime rates, and this breaks the reverse
causation problem. While the study finds a modest link between more police leading to
less crime (but see McCrary, 2002, for identifying a methodological flaw in the
empirical analysis), the key contribution of this study is not in its results, but in its
clever approach to breaking the reverse causation problem. Several other approaches to
dealing with reverse causation soon followed.
One study (Corman and Mocan, 2000) takes advantage of high-frequency data to
resolve the reverse causation problem involving the link between police and crime. High-
frequency data, in this case, use monthly observations, as opposed to quarterly or annual
ones. The reasoning here is that if it takes, for example, several months for the authorities
to increase the size of the police force in response to increased crime rates (due to the
time it takes to hire and train new police officers), the monthly data will be better suited
to pick up the concurrent effect of police activity and crime. Monthly data simply do not
allow enough time for crime rates to affect the size of the police force. That is, the cau-
sation between the size of the police force and crime is likely to run in only one direc-
tion—more police, less crime. The study finds that an increase in the size of the police
force does reduce the crime rate associated with the crimes of robbery and burglary.
Another approach to dealing with reverse causation is to identify an extreme situa-
tion that requires an enhanced police presence, with that situation being independent of
local crime rates. A terrorist attack offers an excellent example of this setting. The
authorities usually respond to a terrorist attack by enhancing police presence in the
vicinity of the attack, yet this response has nothing to do with any change in local
crime rates. Thus, the relationship between police and crime runs one way, and during
the period of enhanced police presence the prediction that more police leads to less
crime can be tested.
There are several studies that use this basic approach to breaking reverse causation.
One such study (Di Tella and Schargrodsky, 2004) examines the extreme setting of a
terrorist attack on the main Jewish center in Argentina that occurred in 1994 in which
many people were killed or injured. The federal government responded by assigning
police protection not only to every Jewish building in the country, but to every Muslim
building as well (to discourage retaliation attacks). Focusing on car thefts in three
neighborhoods (a total of 876 blocks), the study finds that for the five months after the
enhanced presence was in place, compared to the three months before it was in place,
thefts were reduced by 75 percent. This substantial reduction was extremely localized, as
car thefts were not reduced in areas just one or two blocks away from the protected areas.
One important issue that is associated with this approach to examining the impact of
police on crime is to consider the possibility of crime displacement as opposed to crime
deterrence. Simply put, are car thefts (for example) being reduced in the aggregate, or
are they being displaced from the protected areas to other areas? If it is displacement
that is occurring, the evidence for police deterring crime is weakened considerably. One
study (Donohue, Ho, and Leahy, 2014) reexamines the terrorist attack in Argentina
and offers results that weaken the original study’s finding of a police deterrent effect.
While the follow-up study does find (weak) evidence of displacement, that is not its
main argument against the finding of deterrence. The study makes two other points.
First, the enhanced police presence in the protected areas must come from somewhere,
and since this presence developed quickly, it is not likely to be due to new hires. This
implies that other areas in Argentina faced a reduced police presence, and this may have
led to more car thefts not necessarily due to displaced criminals from the protected areas.
Second, and quite simply, police restrictions on parking may have led to fewer cars being
found in the protected areas, thus causing a reduction in the car theft rate. What is useful
about this analysis is that it demonstrates the importance of considering confounding
factors: a result attributed to one factor may no longer hold when other factors are taken
into account. The follow-up study doesn’t rule out the possibility of more police less
crime in this setting, it just introduces more nuance into the analysis.
On the other hand, a similar study (Draca, Machin, and Witt, 2011) finds evidence of
a police deterrent effect that is not offset by a displacement effect. In July 2005, there
were several successful and unsuccessful bombing attacks in central London. Because of
these attacks, a six-week enhanced police presence was deployed, especially around vul-
nerable targets such as transportation system hubs. Examining the crime rates of the
type of crimes that would be most affected by this type of police presence—street-level
thefts and violent crimes—these rates are found to have declined during the enhanced
police presence. As for the displacement effect, the study considered not only geo-
graphical displacement, but also temporal displacement. That is, crime rates did not
seem to increase concurrently in areas outside of the enhanced presence, nor did they
increase in the enhanced deployment areas after the presence was lifted.
There are many other studies examining various aspects of policing and crime rates.
While it is common when considering numerous studies to find evidence both supporting
and refuting the hypothesis of police as a crime deterrent, nevertheless there is a strong
body of research that finds such a deterrent effect exists. As succinctly concluded in an
excellent review study on criminal deterrence (Chalfin and McCrary, 2017):
In sum, while it remains possible that an increased police presence lowers crime by
situating police officers in locations where they are more likely to arrest and inca-
pacitate potential offenders, on the whole, the high degree of visibility around
police crackdowns or hot spots policing suggests a potentially greater role for
deterrence.
(p. 23)
Policing technology and crime

While the studies in the previous section focus on how the hiring of police officers, or the
enhancement of police presence, impact crime rates, the technology and equipment
available to police officers may also have an impact on deterring crime. For example,
since 1997 a federal program known as the 1033 Program has been operating in the U.S.,
overseen by the Law Enforcement Support Office. This has the responsibility of con-
sidering, and approving, requests for the transfer of surplus military equipment to local
police departments for domestic policing uses. There are three categories of military
equipment available to local police departments (see Harris, Park, Bruce, and Murray,
2017): weapons (guns and grenade launchers); optics (scopes and night optics); and
vehicles (aircrafts, trucks, armored personnel carriers, and so on). The local police
departments do not have to buy the surplus material, but they are responsible for paying
all transportation costs, and any other costs involved in securing the transactions (such
as traveling to inspect items available for transfer).
One study (Bove and Gavrilova, 2017), takes advantage of a large U.S. Department
of Defense data set that includes information on over 176,000 military equipment
transfers with 8,000 local police departments during the years 2006 to 2012. The study
offers several interesting results. First, the use of military equipment for domestic
policing purposes is found to reduce crime rates, especially for crimes that appear to be
most affected by police presence, such as robberies, assaults, motor vehicle thefts, and
so on. Quantitatively, the study finds that a 10 percent increase in spending on military
equipment (roughly equivalent to $5,800), leads to an approximately $112,000 reduc-
tion in crime costs.
Second, in terms of police presence, the reliance on military equipment is not chan-
ging arrest rates, and the change in crime rates is not being caused by any increase in
police manpower. In fact, the increased use of military equipment is found to possibly
lead to a reduction in the number of police officers being hired. Thus, military equip-
ment and police manpower may be substitutes for each other, suggesting another
margin in which the authorities can consider in determining an optimal expected
punishment.
Finally, the study finds no evidence that the use of military equipment is causing
more injuries or assaults on police officers, or increasing the number of offenders who
are killed. This last finding is of particular interest because there has been controversy
surrounding the use of military equipment by domestic police departments. The
common belief is that this equipment can only escalate the tensions between the police,
offenders, and innocent bystanders, possibly leading to more violent outcomes. Still,
the authors of the study offer the following concluding comment:
Our results seem to suggest that the returns per dollar spent on the margin to
capital might be even higher than for labor, and this is an issue that certainly
deserves further empirical research. That said, taken together, our results do not
directly provide evidence in favor of or against the possibility that military equip-
ment contributes to overly aggressive approaches by police units, which can in turn
escalate to a standoff between urban communities and the officers that police them.
This is a social cost that our analysis cannot duly capture and is an important
point for future research.
(Bove and Gavrilova, 2017, pp. 17–18)
The authors correctly understand that their cost-benefit analysis does not address the
issue of what the appropriate social welfare objective is in this setting. Even if military
equipment for domestic police use does efficiently reduce crime, its use in and of itself
may be distasteful (for real or misperceived reasons) to a large number of people. This
distaste can certainly be part of the social welfare.
Another important aspect of the probability of arrest involves the clearance rate, that
is, the percentage of reported crimes that end with the arrest of a suspect. While
clearance rates are intuitively thought of as depending on the number of police officers
employed, or the extent of police presence in a particular area, one study (Blanes i
Vidal and Kirchmaier, 2018) considers a different component—the response time of the
police to the scene of a crime. There are several reasons why a rapid response time can
increase the probability of apprehension. The sooner the police arrive at the scene, the
more likely they will find the suspect in the area, or the more likely there will be wit-
nesses available with a fresh memory of the crime, or the more likely they will be able
to preserve crime scene evidence.
The study uses data on the policing behavior of the Greater Manchester (U.K.)
police force for the sample period 2008 to 2014. One useful feature of the data in this
study is that in Greater Manchester, upon receiving a call the responding officers are
usually dispatched from the station, as opposed to being in a patrol car. This means
that there is a direct geographic link between the source of the call and the distance to
the station, suggesting shorter response times for geographically closer crime scenes.
Combining this fact with a fairly intricate statistical methodology, the study finds that
response time is negatively related to the clearance rate, that is, the shorter the response
time, the larger the clearance rate. This result is found to be strongly statistically sig-
nificant, and holds for both thefts and violent crimes, but is found to be stronger for
thefts. The study, however, goes further than just presenting this result.
In the next step of the analysis, the study considers two hypothetical policy options
that may lead to an improvement in response time—the hiring of one additional
response police officer and the geographic relocation of a police station. In performing
the two cost-benefit analyses for these two options, the study recognizes that there are
two basic ways improvements in response times can reduce crime. First, through a
deterrent effect in which criminals simply commit fewer crimes due to the threat of
apprehension and punishment. Second, through an incapacitation effect in which
apprehended and convicted offenders are imprisoned. (The implications of these two
effects in reducing crime are discussed in greater detail in Chapter 4.) Incapacitation, of
course, requires a substantial amount of resources devoted to the building and main-
taining of prisons, and these costs must be taken into account.
Relying on a variety of past studies to calculate the benefits of reducing crime
through deterrence and incapacitation, the study compares these benefits to the costs of
implementing the two hypothetical policies. To hire one additional response officer, the
study estimates an annual cost of approximately £46,000 (in 2014 pounds), yielding a
benefit of approximately £78,000. To relocate all of the response stations in Manchester
to, what the study estimates, would-be optimal locations, this policy would be cost
effective if the average relocation costs per station were less than approximately
£370,000. While it is difficult to calculate the precise cost of relocation, the study
argues that, at least for some of the police stations in Manchester, relocation would be
cost effective. While these types of specific cost–benefit analyses are typically imprecise,
perhaps greatly so, the more important point involves the result that manipulating the
certainty of punishment through improvements in response time may be an effective
way to reduce crime.
Another aspect of efficient policing involves the adoption of new information tech-
nology (I.T.). One study (Garicano and Heaton, 2010) uses a large data set drawn from
thousands of U.S. police agencies for the sample period 1987 to 2003. At the start of
this period in 1987, approximately 20 percent of police agencies used I.T. in the form of
personal computers, mobile computers, and mainframes. By the year 2000, I.T. was
used in over 90 percent of the agencies. Perhaps surprisingly, the study finds that
enhanced I.T. does not lead to increases in clearance rates or reductions in crime rates,
leading to one of its main conclusions—an improvement in I.T., on its own, does not
appear to improve policing productivity. But the study delves deeper into the issue.
Instead of considering an improvement in I.T. in and of itself, the study takes into
account what is known as the complementarity hypothesis:
Although IT by itself may have little impact, its impact may be substantial when it
is introduced within the context of an organizational and human resource system
designed to take advantage of it. In the specific context of police work, the com-
plementarity hypothesis takes one very salient form: Compstat. The system of
practices summarized by this name was initially introduced in the New York Police
Department . . . and then spread throughout the country. The program aimed to
combine real-time geographic information on crime with strong accountability by
middle managers in the form of daily group meetings, geographic resource alloca-
tion, and data-intensive police techniques.
(Garicano and Heaton, 2010, p. 170)
By including the variation in police agencies’ use of complementary inputs to I.T., such
as hiring technical support and enhanced training of existing personnel, the study finds
that “modern” agencies (that is, those that take advantage of complementarity),
experienced reductions in crime rates relative to those agencies that embraced I.T. less
comprehensively.
This result is further confirmed by another study (Soares and Viveiros, 2017) that
looks at a similar situation in the state of Minas Gerais, Brazil. In Brazil, two distinct
police forces operate—the military police forces and the civil police forces. Tradition-
ally, there was little interaction between the two policing organizations, but a sharp
increase in crime during the 1990s led the authorities to consider new policy responses
to fighting crime. One such response was to facilitate more coordination between the
two policing forces that not only allowed for integrated decision making, but for the
implementation of an I.T. system explicitly modeled after the Comstat system in New
York. Using data for the 2000 to 2008 sample period, the study’s main results are that
the coordination of the different police forces reduced property crime by 23 percent,
had a slight effect on reducing homicide rates, and led to an increase in police pro-
ductivity as measured by increased clearance rates.
Conviction rates and crime

Another way for the authorities to vary the certainty of punishment is to manipulate
the probability of conviction. While the economic scholarly literature has devoted
nearly all of its research efforts toward examining either the impact of the probability
of arrest or the nature and magnitude of the severity of punishment on crime rates,
there are a few studies that have considered how crime is affected by the probability of
conviction. Similar to the Grogger (1991) study discussed in Chapter 1, some studies
include a variable in their regression analyses that explicitly takes into account the
probability of conviction. One study (Cornwell and Trumbull, 1994) uses crime data
from 90 counties in North Carolina during the period 1981 and 1987, and finds that an
increase in the probability of conviction does reduce the crime rate, but does not find it
to be a large effect.
Another study (Entorf and Spengler, 2015) offers a comprehensive examination of
prosecutorial practices in West Germany during the sample period 1977 to 2001. The
key to the study is that it takes advantage of the fact that the authorities in West Ger-
many, during this period and beyond, pursued an explicit policy of reducing conviction
rates to alleviate prison costs:
In Germany, prior to judicial decisions, a growing share of cases has already been
discharged by the public prosecutor. This high discretionary power of the prose-
cutor, known as pre-trial diversion or informal sanctioning, is to determine which
case should be disposed of before trial by either dismissal of the charges or by
imposing certain obligations on suspects in exchange for laying the file aside. The
portion of crime suspects formally convicted in a court (under general and juvenile
penal law) compared to all people sanctioned (informally and formally) steadily
declined from 64% in 1981 to 42% in 2008. The prosecutor accounts for the bulk of
all cases, the judges in courts are only responsible for 14.5% of all dismissals.
(pp. 167–168)
Thus, conviction rates were on the decline throughout this period, and the study is
interested in determining if the probability of conviction can explain the variation in
crime rates.
The study finds that conviction rates do have an effect on crime rates in Germany
throughout the sample period. Both property crimes and violent crimes are negatively
related to the probability of conviction, meaning that the German policy of reducing
conviction rates has likely led to increased crime. Furthermore, the study does not find
compelling evidence that the severity of punishment has much impact on crime rates.
The study offers two measures of the severity of punishment—the probability of
receiving a prison sentence (as opposed to a noncustodial sanction such as probation or
a fine) and the length of the prison sentence. While property crimes are negatively
related to the probability of imprisonment, violent crimes are not. As for the length of
the prison sentence, the study does not find this variable to have any effect on either
property or violent crimes.
Taking a slightly different track, one study (Atkins and Rubin, 2003) uses the deci-
sion in the U.S. Supreme Court case Mapp v Ohio (1961) to examine if changes in the
probability of conviction are associated with a deterrent effect. In Mapp, the court
ruled that in state criminal trials, evidence that was obtained by the police illegally
(that is, in violation of the Fourth Amendment of the U.S. Constitution), was to be
excluded from being considered at trial. This has become known as the exclusionary
rule.
From a rational crime perspective, to the extent that the exclusionary rule makes it
more difficult for prosecutors to convict defendants, criminals may face a lower
expected punishment through a reduced certainty of punishment. The study takes
advantage of the fact that prior to the court’s ruling, of the 48 continental states,
exactly half had already adopted some form of the exclusionary rule, while the other
half had not. Because of this difference, it can be predicted that the crime rates in the
states that had already adopted a form of the exclusionary rule should not be affected
by the court’s ruling. The other states that would have to adopt the rule, however, may
face higher crime rates.
The study finds that in the states affected by the court’s ruling, crime rates did indeed
increase: on average (relative to the other states), the crime rate for larceny increased by
3.9 percent; for auto theft by 4.4 percent; for burglary by 6.3 percent; and for robbery
by 18 percent. Focusing on suburban areas only, the effects were even larger, as violent
crimes increased by 27 percent and property crimes increased by 20 percent. The study
interprets these results as providing evidence that changes in criminal procedure can
have a serious impact on crime rates, suggesting that there are offsetting costs to
whatever benefits are associated with enhancing the rights of defendants.
In all, there is a body of empirical evidence that finds that crime rates can be reduced
through an increase in the certainty of punishment, with the bulk of the research focusing
on policing behavior. That being said, there are some additional points that are worth
considering. It is common, especially for laypeople, to question the importance of
empirically verifying a result that appears to be “obvious.” For example, isn’t it obvious
that if more police officers are hired or deployed in a specific area, crime will be reduced?
As we will see throughout this book, what appears to be obvious may turn out not to be
easily empirically verified. Furthermore, oftentimes completely counterintuitive results
are empirically supported. And even when a result is verified, such as when a deterrent
effect is found to exist, there may be tremendous value in further examining if the
deterrence benefits outweigh the resource costs of implementing the policy. The results of
cost-benefit analyses, especially for complicated social policy settings, are rarely obvious.
Some of the most passionate debates in economics involve disagreements over the
interpretation of empirical evidence. It is common to find a substantial body of evi-
dence that supports a particular hypothesis only to find an equally substantial body of
evidence that refutes the same hypothesis. There is simply no such thing as a definitive
empirical study, and it can be argued that there is even no such thing as a definitive
body of empirical evidence associated with a particular social issue. This will be seen in
later chapters, especially with respect to such controversial topics as capital punish-
ment, racial profiling, and gun control. So, what accounts for this severe lack of con-
sensus among empirical studies?
Empirical analysis requires the use of data, and data collection can be difficult to do.
Data are often measured inaccurately, and there can be legitimate disagreement over
how to measure any specific variable. Furthermore, the real world is an extremely
complicated place to study, and a thorough empirical analysis of all the trade-offs
associated with a social issue may not be possible if all the relevant data are not avail-
able. And while most empirical researchers are well aware of, and prepared to deal
with, these shortcomings, the nature of statistical analysis allows for numerous possible
approaches in the study of any particular issue. This variety of empirical methodologies
inevitably leads to a variety of empirical results.
As this is a book about the economics of crime, there will be a slight bias toward
presenting studies that lend support to rational crime analysis. However, these studies
will never be presented as being definitive, and there will be numerous studies presented
that contradict rational crime hypotheses. Every social issue discussed throughout this
book will be associated with a scholarly empirical literature that yields contradictory
results. It is not the goal here to choose sides in these empirical debates, but instead to
illustrate the role of economic analysis in attempting to sort through public policy
responses to these important social issues. Always keep in mind that economics is only
a way to approach these issues, not the way, but it is arguably an important and inter-
esting way to think about crime and punishment.
Finally, while there is empirical support for fighting crime through the manipulation
of the certainty of punishment, what the above studies do not address is how devoting
resources to the certainty of punishment trades off against manipulating the severity of
punishment. In other words, even if, for example, the benefits in terms of crime reduc-
tion of hiring more police officers offset the costs of this policy response, would it be
more efficient instead to devote resources to enhancing the severity of punishment
through various means? What is the optimal mix of certainty versus severity when
setting the expected punishment? This question will be addressed in Chapter 3.
References
Atkins, R.A. and Rubin, P.H. (2003) “Effects of Criminal Procedure on Crime Rates: Mapping
out the Consequences of the Exclusionary Rule,” Journal of Law and Economics, 46: 157–179.
Blanes i Vidal, J. and Kirchmaier, T. (2018) “The Effect of Police Response Time on Crime
Clearance Rates,” Review of Economic Studies, 85: 855–891.
Bove, V. and Gavrilova, E. (2017) “Police Officer on the Frontline or a Soldier? The Effect of
Police Militarization on Crime,” American Economic Journal: Economic Policy, 9: 1–18.
Chalfin, A. and McCrary, J. (2017) “Criminal Deterrence: A Review of the Literature,” Journal
of Economic Literature, 55: 5–48.
Corman, H. and Mocan, H.N. (2000) “A Time-Series Analysis of Crime, Deterrence, and Drug
Abuse in New York City,” American Economic Review, 90: 584–604.
Cornwell, C. and Trumbull, W.N. (1994) “Estimating the Economic Model of Crime with Panel
Data,” Review of Economics and Statistics, 76: 360–366.
Di Tella, R. and Schargrodsky, E. (2004) “Do Police Reduce Crime? Estimates Using the Allo-
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Donohue, J.J., Ho, D.E., and Leahy, P. (2014) “Do Police Reduce Crime? A Reexamination of a Nat-
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Draca, M., Machin, S., and Witt, R. (2011) “Panic on the Streets of London: Police, Crime, and
the July 2005 Terror Attacks,” American Economic Review, 101: 2157–2181.
Entorf, H. and Spengler, H. (2015) “Crime, Prosecutors, and the Certainty of Conviction,” European
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Harris, M.C., Park, J., Bruce, D.J., and Murray, M.N. (2017) “Peacekeeping Force: Effects of
Providing Tactical Equipment to Local Law Enforcement,” American Economic Journal:
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Crime,” American Economic Review, 87: 270–290.
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Crime: Comment,” American Economic Review, 92: 1236–1243.
Soares, R.R. and Viveiros, I. (2017) “Organization and Information in the Fight against Crime:
The Integration of Police Forces in the State of Minas Gerais, Brazil,” Economia, 17: 29–63.
3 Severity of punishment I
Fines and efficient punishment
Consider the following novel approach to deterring speeding on state highways. In each
state, there will be just a handful of unmarked police cars to enforce the speed limit. If
you are caught speeding, you must immediately forfeit your vehicle, as well as all the
money you are carrying and any other property you have with you. You will never be
imprisoned, and you will face no other punishment other than having to find some way
to get back home. Although this sounds ludicrous and will never seriously be con-
sidered in the real world, at its core there is sound economic reasoning behind this
policy option.
By using only a handful of police cars, the authorities are imposing a very low cer-
tainty of punishment on highway speeders. By requiring the offender to forfeit every-
thing he has with him at the time, the authorities are imposing a reasonably high
severity of punishment. In other words, if you enjoy speeding on state highways, it will
be unlikely that you will be caught, but if you are you will be severely punished. Thus,
even with a low certainty of punishment, the expected punishment may be high enough
to efficiently deter speeding, and use reasonably few resources in doing so. This chapter
will consider how the authorities may achieve a desired level of expected punishment
by using few resources. And to an economist, the fewer resources used to achieve a
specific goal, the better.
Certainty versus severity of punishment

The key policy tool the authorities have in attempting to reduce the crime rate is the
setting of the expected punishment. This involves two difficult and simultaneously
related problems. First, the authorities must choose an appropriate level for the expec-
ted punishment, and this will vary across different crimes. Second, the authorities must
consider how to trade off between the certainty and severity of punishment for each
level of expected punishment. This second problem further requires a consideration of
how to trade off the probability of apprehension versus the probability of conviction in
setting the certainty of punishment, and in deciding what type of sanction to use. To
sort through all the possible ways an expected punishment can be set, Gary Becker in
his seminal 1968 paper (see Chapter 1) offers a unique recommendation: use the sanc-
tion of fines as often as possible, and combine a low certainty of punishment with a
high severity of punishment.
Why use the sanctions of fines as often as possible? Consider a common alternative
to fines—a prison sentence. Not only are prisons costly to build, they are costly to
maintain. In contrast, while a system of fines does involve administrative and
Severity of punishment I 23
enforcement costs, these costs are likely to be modest compared to the costs of oper-
ating prisons. Furthermore, to adjust the amount of a fine all that is needed is to state a
new amount, but to increase the length of a prison sentence, additional resource costs
have to be incurred. Finally, to the extent that fines are collected, this provides an
additional revenue stream for the authorities which may more than offset the costs of
maintaining the system.
So, for the time being, let’s take it for granted that from a resource cost perspective,
fines are the most efficient form of sanction the authorities can use. Once the autho-
rities determine the desired expected punishment to set, the next step is for them to
decide on the combination of certainty and severity that leads to that expected pun-
ishment. Let’s return to the example used in Chapter 1 and assume that the desired
level of expected punishment is $500. As seen previously, one way to achieve that level
is to set the certainty at 50 percent, and the severity at $1,000. But there are many
combinations of certainty and severity that also achieve an expected punishment of
$500. The authorities can raise the severity to $5,000 and lower the certainty to 10
percent. Or, the authorities can lower the severity to $750 and raise the certainty to
(approximately) 67 percent. Whatever they decide to do, the important point is that the
authorities are trading off between the certainty and severity of punishment. That is, in
considering the many combinations that determine a specific level of expected punish-
ment, the certainty and severity of punishment move in opposite directions.
Becker’s proposal of combining a low certainty of punishment with a high severity
(with the sanction being a fine) stems, once again, from a resource cost argument. To
increase the certainty of punishment, more resources will have to be devoted to enhan-
cing police and prosecutorial efforts. But to increase a fine, as mentioned above, all that
is needed is to state a larger dollar amount. And while it is likely that as the size of the
fine increases, so will the enforcement costs of collecting the fine, it is also likely to be the
case that the resource cost of increased certainty will outweigh the resource cost of
increased severity. So of the three combinations of certainty and severity presented in the
numerical example, the $5,000 fine coupled with the 10 percent certainty will require the
fewest resources to maintain an expected punishment of $500.
If keeping the resource cost of setting the expected punishment as low as possible is
the true goal, we can push the argument to its logical extreme. Why not make the
certainty of punishment very low, and set the severity of punishment very high? For
example, a $50,000 fine coupled with a 1 percent certainty yields an expected punish-
ment of $500, and maintaining a certainty of 1 percent will use far fewer resources than
maintaining a certainty of 10 percent. And it doesn’t have to stop here, as the autho-
rities can set the certainty at 0.5 percent (1 in 200) and the severity at $100,000, or the
certainty at 0.1 percent (1 in 1,000) and the severity at $500,000, and so on. This eco-
nomic prediction is quite strong, but it suffers from one immediate problem—we do
not observe this type of expected punishment structure in the real world.
It is not uncommon for economic theoretical predictions to be unobserved, or rarely
observed, in the real world. While using fines, at any level of severity, may not seem
socially acceptable to punish offenders committing violent crimes, it is quite curious
that we don’t see low certainty of punishment coupled with high fines even in situations
where it can easily be implemented. For example, we use fines to punish drivers who
exceed the speed limit. The average speeding ticket is typically in the hundreds of dol-
lars. How easy would it be to increase the average fine to being in the thousands of
dollars? Not only would this increase the expected punishment and likely reduce
speeding, additional resources would not have to be devoted to enhancing the certainty
of punishment. Actually, this increase in the average fine could lead to a higher expec-
ted punishment even if fewer resources were devoted to apprehension, as would be the
case if the authorities put fewer state troopers on the road.
It doesn’t take much effort to criticize Becker’s basic approach to crime deterrence
for its lack of pragmatic value. Yet the approach is not meant to be used a blueprint for
policy advice, but as a starting point to consider when the principles may best be
applied and when they are likely to fail. If we rarely see large fines coupled with few
resources devoted to the certainty of punishment, it is important to understand why
this may be so. Economists have often considered refinements to Becker’s model, and
reconsidering the nature of fines as an efficient and effective sanction is a good place to
start.
Some problems with fines

The most obvious problem with large fines is that most people would be unable to pay
them. If you lack the ability to pay a $20,000 fine, that amount would have the same
deterrent value as would any greater amount. And even if the expected punishment is
much lower due to a low certainty of punishment (for example, a 1 percent chance of
being fined $20,000 yields an expected punishment of only $200), the fine itself would
still have to be paid after the fact. But this problem suggests only a slight change to the
idea of setting a high fine with a low certainty of punishment. Instead, the authorities
can set fines as high as pragmatically possible, and increase the certainty of punishment
only as much as needed to achieve the desired expected punishment.
Alternatively, the authorities can maintain a very low certainty of punishment and
set fines as high as possible, and enhance the severity of punishment with an alternative
sanction such as prison sentences. This option can be efficient if the resource cost of
increasing the certainty of punishment is high relative to the cost of imprisonment. In
fact, there is some evidence that fines and prison are used as substitutes. One study
(Waldfogel, 1995) examines offenders who have committed the crime of fraud and finds
that fines are directly related to a defendant’s ability to pay, and are used reasonably
efficiently with prison sentences. On average, for each one-month reduction in the
prison sentence, there is a $1,500 to $2,000 increase in the fine. This suggests that while
monetary sanctions are not being used exclusively or excessively, they are being used on
the margin to reduce the resource cost of imprisonment.
There are several other reasons why it may be inefficient to use excessive fines to
deter crime. If the authorities are using a harsh sanction, it may be more difficult to
apprehend criminals who try to evade capture to avoid the sanction. This may require
the authorities to devote more resources to apprehension. Furthermore, the evasion of
capture, in and of itself, may lead the offender to create more damage, such as could be
the case with a high-speed car chase through traffic. Offenders who feel like they have
nothing more to lose may be less deterred from committing additional crimes. But this
problem is not unique to fines, but instead to the excessive severity of the punishment.
Another problem that is unique to fines has to do with an incentive issue the autho-
rities may face. And this can be a very serious problem.
If criminals are fined instead of imprisoned, not only does the state save on the
resource costs of prisons, it also collects revenue. While, as mentioned above, this can
make a system of fines self-financing, it can also provide a profit stream for the
authorities. In addition, in some cases, such as with drug-related arrests, the authorities
enjoy asset-seizure powers which compel suspected offenders to forfeit property. This
can add hundreds of thousands of dollars’ worth of gains to the authorities, as seen in
this example reported in the Columbus (Ohio) Dispatch (August 6, 2005):
A Columbus dope dealer got five years in prison. The federal government and state
and local law-enforcement agencies got $840,190 of his money and a lot of his
property—three cars, a tow truck, three all-terrain vehicles, a John Deere tractor, a
speedboat, a Wave Runner and three trailers. The law enforcement agencies sold
most of the property and divided the proceeds and the cash among themselves.
Under a 1984 law, federal law enforcement can take property used in pornography,
white-collar or drug crimes as well as illegal profits and property bought with dirty
dollars. Assets can be seized through court action even if the owners are never
charged with a crime. “Take away what they’ve gained in crime and that reduces
the incentive,” said Fred Alverson, a spokesman for the U.S. attorney office in
Columbus.
While it is true that large fines and asset seizures may provide deterrent effects that
reduce the crime rate, they may also give the authorities the perverse incentive to
overdeter certain crimes.
For example, you often hear about a small town that is well known for its “speed
trap” along a stretch of highway that goes through its jurisdiction. Because speeding
tickets are a way of generating revenue, the police may have the incentive to catch a lot
of individuals who speed by strictly enforcing the speeding laws. But why is this a pro-
blem? As long as the tickets are sincerely given to drivers who speed, only the guilty are
punished.
The problem with excessive ticketing is that too many resources may be going
toward deterring speeding just for the sake of the police trying to reap financial gain.
Recall that the justification for setting a high severity of punishment is to save resources
by simultaneously setting a low certainty of punishment. But if the authorities reap
financial gains, they may have the incentive to use a high severity and high certainty of
punishment. Also, resources may be drawn away from the investigation of other crimes
that do not offer the authorities financial rewards, so there may be an underdeterrence
of those crimes. Finally, financial gain to the police may give them an incentive to act
corruptly by fining the innocent as well as the guilty, especially if those who have their
property taken can retrieve their assets only by suing the state. Thus, not allowing for
excessive financial sanctions may lead to more efficient crime deterrence policy.
There is yet another argument against using large fines with a low certainty of pun-
ishment. If the rational criminal is concerned only with the level of the expected pun-
ishment, and not how that level is made up of the two components, it can be argued
that the choice of certainty versus severity can be based on their respective resource
costs. As we have seen, if fines are relatively inexpensive to enforce, but maintaining a
high level of probability of apprehension uses a lot of resources, a small certainty
combined with a large severity of punishment may be efficient. However, it is possible
that a criminal is not only concerned with the level of the expected punishment, but
also with the magnitude of the various components.
Consider the three components of an expected punishment—the probability of
apprehension, the probability of conviction (given apprehension), and the severity of
the punishment, in this case a monetary fine. Assume that the probability of appre-
hension for a particular crime is 40 percent, the probability of conviction is 80 percent,
and the fine is $100,000. The expected punishment, then, is (40 percent)(80 percent)
($100,000) = $32,000. If the criminal is only concerned with the $32,000 level of the
expected punishment, it wouldn’t matter how the three components are broken down,
at least not for deterrence purposes. But what if the criminal is concerned with each
individual component?
For example, if we raise the probability of apprehension to 50 percent, don’t change
the probability of conviction, and lower the severity to $80,000, we still have an
expected punishment of (50 percent)(80 percent)($80,000) = $32,000. Yet if the criminal
is more sensitive to the change in the probability of apprehension than to the change in
severity, there may be a greater deterrent effect from the new numbers. Similarly,
compared to the original numbers, if we raise the probability of apprehension to 50
percent, lower the probability of conviction to 64 percent, and keep the severity at
$100,000, we still maintain the expected punishment at (50 percent)(64 percent)
($100,000) = $32,000. But if the criminal is more sensitive to the change in the prob-
ability of apprehension than to the change in the probability of conviction, again there
may be a greater deterrent effect with these last numbers compared to the original
numbers.
Recall that one study (Grogger, 1991, discussed in Chapter 2) finds that criminals
appear to be more sensitive to changes in the certainty of punishment relative to
changes in the severity of punishment. Perhaps apprehension has more of an impact
than conviction or severity because it is incurred more immediately by the offender.
Arrest is usually the start of a chain of criminal justice events that may take weeks,
months, or sometimes years to be fully realized. Furthermore, as will be discussed
below, apprehension in and of itself may be punitive if it imposes a social stigmatizing
effect on the offender.
The policy implications of this result may be substantial. It is possible that a small
expected punishment with a high probability of apprehension has a greater deterrent
effect than a higher expected punishment with a lower probability of apprehension. If
this is true, by considering which component of the expected punishment criminals
appear to be most sensitive to, it may be efficient to move resources away from con-
viction or severity and toward apprehension. With this in mind, the authorities face an
intricate problem in setting the expected punishment. Choosing an optimal expected
punishment and then maintaining it with as few resources as possible is only part of the
problem. It may be worth using more resources to maintain the same level of expected
punishment with a different mix of certainty and severity, if that different mix yields a
greater deterrent benefit.
Fines and wealthy criminals

As argued above, one problem with using fines is that an optimal fine may be too large
for many offenders to pay, suggesting that the fine would have to be augmented either
with an alternative sanction such as prison, or by enhancing the expected punishment
through increases in the certainty of punishment. Both of these “corrections” would
require the use of costly resources, defeating Becker’s argument in favor of setting a low
certainty of punishment backed with a high monetary severity of punishment. And
even if an offender could afford to pay a large fine, a prohibitively large fine could
bankrupt the offender and possibly leave him as a burden to the state, or provide him
with the incentive to commit further crimes.
These problems with fines have led some scholars to argue that fines are a punish-
ment best imposed against the wealthy because they are in the best position to be able
to afford to pay the financial penalties without extreme hardship. But this raises the
(commonly expressed) criticism that the wealthy and poor will be treated differently by
the criminal justice system. In addition, if wealthy criminals are fined and not impri-
soned, it is argued that this will encourage the wealthy to commit crimes as long as
they feel they can afford to pay the fines if caught. Imprisonment is considered a
harsher penalty and thus creates a greater deterrent effect.
From an economic perspective, however, fines and imprisonment can lead to the
same deterrent effect. As with the setting of any punishment, the key is for the autho-
rities to set the desired expected punishment by considering numerous options. Con-
sider the crime of embezzling money, often associated with “white-collar” criminals. If
a criminal is considering stealing $10,000, to deter that crime the desired expected
punishment can be no less than $10,000. Any fine less than $10,000 would offer no
deterrence even if the certainty of punishment was at 100 percent. If the fine is exactly
$10,000, only with a certainty of 100 percent does the criminal have no incentive to
steal that amount. As the certainty of punishment falls below 100 percent, the optimal
fine must be increased above $10,000. So while a wealthy criminal may be able to
“afford” to pay a large fine if caught committing a crime, there is clearly a large
enough fine that would deter him from committing the crime in the first place. No
doubt a prison sentence can be used that will also deter the crime, but prison is likely to
require a greater use of costly resources to enforce.
The more serious concern about using fines to deter white-collar crime is that the
fines have, at least historically, been set at too low a level, regardless of the level of the
certainty of punishment. In 1991, the U.S. Sentencing Commission established senten-
cing guidelines to substantially increase the size of fines imposed on corporate offen-
ders, and to lessen the discretion judges had in sentencing such offenders. One study
(Alexander, Arlen, and Cohen, 1999) examines sentences imposed on publicly traded
firms between the years 1988 and 1996 and finds that corporate fines did substantially
increase after the guidelines were enacted. Prior to the guidelines, for the set of cases
they examine, they find the average fine to be approximately $1.9 million. After the
guidelines, the average fine increases tenfold to $19 million. But another study (Parker
and Atkins, 1999) examines a different set of cases and finds that the guidelines have, at
best, only a marginal effect on the size of the fines imposed on corporate criminals. The
study suggests that the guidelines may have been more of a political maneuver to pro-
mote a “tough on corporate crime” platform without really having much of a real
effect on corporate crime sanctions, although it did find that at least some offenders
faced substantial fines.
Putting all of these concerns together, it can be argued that, in theory, fines can be
used to deter white-collar crimes. If the fines are not being set at a high enough level
for deterrence, prison certainly can be used to enhance the severity of the punishment,
but fewer resources can be used if the authorities choose to consider setting an appro-
priate level of fines. Yet economic reasoning offers another approach due to the fact
that white-collar criminals may have more to worry about than simply the sanction
they may face if they are caught and convicted. They also have to be concerned with
any loss of reputation they may suffer on account of being identified as a criminal. And
this potential loss of reputation may provide enough of a deterrent effect to compensate
for any shortcoming in the magnitude of a fine.
As soon as an offender enters the criminal justice system, his reputation can be
damaged. Consider an accountant who is suspected, and arrested, for embezzlement.
The arrest itself immediately damages his professional standing. Even if not imprisoned
while awaiting trial, it is unlikely he will be able to continue to work in his chosen field.
To prepare for trial, he will have to incur substantial legal costs. If he is convicted,
things get worse as he is likely to lose his professional license and face a fine and/or a
prison sentence. And if he is imprisoned, he has to return to society as an ex-convict,
with the negative stigma associated with that, especially in terms of securing post-
release employment. But even if he is exonerated and faces no formal sanction, there is
still the chance that his reputation never quite rebounds. In short, the criminal justice
system can be highly punitive in ways not directly under the control of the authorities.
There are a number of empirical studies that attempt to measure the extra-punitive
effects of criminal conviction for white-collar crimes. One study (Lott, 1992) examines
the difference between preconviction income and post-conviction earnings for criminals
who have served time in prison for committing embezzlement or fraud. The largest
reductions in legitimate income are found to occur for the wealthiest criminals, and
even a modest increase in the offender’s income leads to a huge increase in the total
monetary penalty eventually incurred. Another study (Waldfogel, 1994) examines the
persistence of these negative effects on employment and income for offenders convicted
of fraud or larceny, and finds that the negative effects can persist for up to several
years.
One very thorough study (Karpoff, Lee, and Martin, 2008) compiles a data set that
includes every enforcement action undertaken by the Securities and Exchange Com-
mission and the Department of Justice involving financial misrepresentation for the
sample period 1978 to 2006, a total of 788 actions involving 2,206 individuals. The
study is able to match various punitive outcomes to specific individuals, with such
outcomes including: loss of employment from current job; unable to secure similar
employment with other companies; loss of wealth through holdings of stock; punitive
fines from the Securities and Exchange Commission; and criminal charges from the
Department of Justice. The results are quite striking. Over 93 percent of the identified
perpetrators lost their jobs. Over 30 percent were barred by the Commission from
seeking employment as an officer or director in a public firm. The average loss in stock
value was over $15 million, and the average Commission-imposed fine was nearly $6
million. Finally, 28 percent of the individuals faced criminal charges, and those who
pleaded guilty or were convicted faced an average prison sentence of 4.3 years.
From a deterrence perspective, the important point to take from studies like those
above is that punishment has many forms. Not only do the authorities determine pun-
ishments for various crimes, there can be market forces and reputational effects that
also are punitive. If it appears that the authorities are underpunishing white-collar
criminals, that does not necessarily mean such criminals are being underdeterred. In
fact, when considering the resource costs of determining an expected punishment, it
may be efficient for the authorities to devote fewer resources to the certainty and
severity of punishment and rely on other forms of punishment to pick up any slack.
And this observation can be taken one step further—it may be efficient for the autho-
rities to directly consider nontraditional sanctions that use far fewer resources than
prison, and are easily “affordable” by poor defendants. We now turn to such sanctions.
Shaming punishments
Although fines and imprisonment are two of the most common forms of punishment,
there are other alternatives. One such alternative is known as a shaming punishment.
As an example, during the mid-1980s in Lincoln County, Oregon, the district attor-
ney and the courts gave convicted nonviolent burglars a say in determining their
punishment. The offenders could either choose a jail sentence or allow a full-page
advertisement in the local newspaper that would show their picture, describe their
crime, and offer an apology to the victims and the community. It was reported that
criminals were very reluctant to choose the newspaper ad (Wall Street Journal, April 2,
1987), suggesting that the experiment was not overly successful. From an economic per-
spective, however, perhaps the experiment was successful after all, if we consider a specific
interpretation of the results.
Instead of continuing to give the offenders choice, or abandoning the experiment
altogether, the community could have imposed the newspaper ad on these particular
offenders. If we consider this unique sanction from a deterrence perspective, the fact
that many offenders did not choose the ad suggests that, at least to them, it was a more
severe sanction than jail time. And if we consider the sanction from a resource cost
perspective, even if the offenders didn’t have to pay for the ad, the cost of imprison-
ment to the authorities was likely to far exceed the cost of the ad.
Shaming punishments come in many forms, as the following examples demonstrate
(see Dynes and Whitmer, 2013):
A thief was ordered to wear noisy tap shoes when out in public.
A convicted sex offender was ordered to post signs on his residence and vehicles
that read “Dangerous Sex Offender.”
A defendant was ordered, while on probation, to always wear a t-shirt in public
that read on the front “My record plus two six-packs equals four years,” and on
the back “I am on felony probation for theft.”
The mother of a pre-teenage girl who ended up in juvenile court for cutting the
hair off a toddler, was given the choice to reduce her daughter’s sanction of com-
munity service by 150 hours if she cut off her daughter’s pony tail in open court.
She chose to cut off the pony tail.
And these are just a small sample of the many examples of shaming punishments that
have been ordered by the courts.
If shaming punishments offer a low-cost and high-deterrence form of sanction, they
provide some of the benefits of fines without the associated problems discussed above.
For example, the typical shaming punishment can be “afforded” by low-income offen-
ders. In addition, those in authority have little to personally gain from shaming pun-
ishments, as they would have when collecting fines. But with a shaming punishment, it
may be very difficult to gauge the deterrence value of a particular sanction. How much
does one’s reputation matter? You may find it highly deterring to have to stand in front
of a post office wearing a sign that reads “I stole mail, this is my punishment” (an
actual real-world punishment), but someone else may find it silly, especially when
compared to other forms of sanctions such as fines or prison.
Shaming punishments are not without controversy, especially when social objectives
other than efficient punishment are taken into account. One legal scholar who provided
an early defense of shaming punishments (Kahan, 1996) later partially recanted
(Kahan, 2006) by offering the final argument:
I emphasized that punishments, to be politically acceptable, must express author-

itative moral condemnation. That’s true, but incomplete. Members of society also
expect punishments—and essentially all laws for that matter—to affirm the core
values that animate their preferred ways of life. Modes of punishments that are
equivalent in their power to convey moral disapproval might still convey radically
conflicting messages about the nature of the ideal society. What’s really wrong with
shaming penalties, I believe, is that they are deeply partisan: when society picks
them, it picks sides, aligning itself with those who subscribe to norms that give
pride of place to community and social differentiation rather than to individuality
and equality. Ironically, what’s right about imprisonment, at least from an expres-
sive political economy point of view, is that it is robustly pluralistic. Imprisonment
is endowed with a sufficiently rich and diverse array of meanings that persons of
diverse worldviews… can all find affirmation of their values in it simultaneously.
(Kahan, 2006, p. 2076)
While this is an eloquent defense of imprisonment over shaming punishments, it hinges

on factors that are beyond the scope of efficient punishment theory.
As argued in an earlier chapter, different social objectives yield different public policy
solutions, and it is not a matter of shaming being “right” versus “wrong” or “good”
versus “bad.” But within the domain of economics, shaming may be criticized for more
pragmatic reasons:
Shaming conditions in particular may seem like a creative alternative, and there-
fore attractive punishment in the abstract, but they have not been proven to actu-
ally deter and rehabilitate the individual. There is also a real risk that shaming
conditions could do more psychological harm to the offender, negating any
improvements the justice system may have made in encouraging the individual not
to re-offend.
(Landis, 2017)
In short, it becomes an empirical issue to determine if shaming punishments deter

crime or reduce recidivism. And while there are very few studies along these lines, there
is one study that offers a striking example of how shaming punishments may be
exacerbating a particular social problem rather than alleviating it.
Sexual offender registration and notification laws

On July 29, 1994, 7-year-old Megan Kanka was raped and murdered in Hamilton
Township, New Jersey. Her attacker was a 33-year-old man, Jesse Timmendequas, who
had recently moved into Megan’s neighborhood and lived in a house across the street.
Unknown to the Kanka family, however, was that Timmendequas was a previously
convicted repeated sex offender who had served time for assaulting young girls.
Megan’s parents claimed that had they known about Tammendequas’ past record, they
would have been able to protect Megan from coming into contact with him. Immedi-
ately after Megan’s death, the Kankas began a campaign to enact laws designed to
provide notification to neighbors of a sexual predator moving into the neighborhood.
Within three months, New Jersey passed the first informally named “Megan’s Law,”
and shortly afterwards a federal law was also passed.
Megan’s Law requires each state to provide some form of notification when a known
sexual offender moves into a neighborhood. The precise nature of the notification dif-
fers from state to state, but has typically evolved from less severe to more severe over
time. Less severe forms of notification involve public access only through a written
request, or access only through visiting a police department. Public access through the
internet by using an offender’s name or by using your own address to see if an offender
lives close by is a more severe form of notification. Finally, the most severe forms of
active notification involve actions in which the authorities provide the information to
residents through newspaper ads, door-to-door visits, or letters mailed to the home.
The role of notification is to draw on residents’ support to reduce sexual offender
recidivism. Well-informed residents can have their children avoid contact with known
offenders, and possibly monitor the behavior of offenders. Notification is a means of
enhancing community policing efforts. In contrast, the federal sexual offender registra-
tion law (predating the federal notification laws by a couple of years) requires states to
maintain a registry of convicted sex offenders for, in theory, the exclusive use of law
enforcement. Registration law is meant to enhance law enforcement policing efforts.
Upon release, sex offenders are required to provide authorities with information on
their age, race, and other demographics, the location of their home, workplace, or
school, and their criminal history. Registration is meant to lower offender recidivism
through increased police surveillance, and by increasing the probability of apprehen-
sion because likely suspects are known to the police.
Although both registration and notification laws are policies directed toward
impacting the behavior of known sexual offenders, thus reducing recidivism, they may
also serve as a deterrent to first-time offenders who do not want to eventually be
registered and publicly known as sexual offenders. Do these laws simultaneously pro-
vide deterrence benefits for first-time offenders as well as reducing sexual offender
recidivism? One study (Prescott and Rockoff, 2011) attempts to answer this question by
separating out the effects of registration and notification on sexual offender criminal
behavior.
Regarding the registration laws, the study finds no evidence that registration deters
first-time sexual offenders. The intuition behind this result is that even without formal
registration laws for sexual offenders, a first-time offender will always be registered
somewhere in the system. Apprehension, conviction, and punishment all require the
offender to be known by law enforcement, regardless of the crime. In effect, sexual
offender registration laws are largely redundant in this sense. But the study does find a
benefit of registration laws in terms of reducing recidivism. By having to register with
the authorities, a released sexual offender is always aware that the authorities know
who he is and where he lives. When considering committing a repeat offense, then, he
may realize that he faces a substantial probability of being apprehended. This increase
in the expected punishment can deter repeat offenses.
Regarding the notification laws, the study finds that there is a deterrent effect for
individuals not currently registered as sex offenders. The intuition behind this result is
that offenders contemplating their first sexual crime may want to avoid potential future
notification laws as they are quite severe. One study (Tewksbury, 2005) provides some
evidence of the extent of how harsh the notification laws can be. Using survey data
from 121 registered sex offenders in Kentucky, the study finds the percentage of these
offenders who have experienced the following specific negative experiences: loss of job
(42.7%); denial of promotion at work (23.1%); loss/denial of place to live (45.3%);
treated rudely in a public place (39.3%); asked to leave a business (11.1%); lost a friend
who found out about registration (54.7%); harassed in person (47%); assaulted (16.2%);
received harassing/threatening phone calls (28.2%); and, received harassing/threatening
mail (24.8%).
At first blush, this result illustrates the economic benefit of shaming punishments.
While they can be extremely harsh and effectively deter criminal behavior, they also
may require very few resources to implement (especially compared to a sanction
like prison). Thus, the justification for sexual offender notification laws corresponds
well with Becker’s basic approach to deterring crime—use as few resources as pos-
sible to achieve an optimal deterrence rate. The authors, however, point to a serious
potential downside of these laws—they may actually enhance sexual offender reci-
divism. It is precisely the harshness of notification laws that may induce released
sexual offenders to continue committing crimes. If it is difficult for convicted sexual
offenders to assimilate into society because of public awareness of their past crim-
inal history, they may find less reason to refrain from committing current or future
crimes.
On the whole, the study finds that registration and notification laws together appear
to reduce sexual offenses, but this result can be more carefully scrutinized. Registration
is more effective at reducing recidivism, and notification is more effective at reducing
first-time offenses. Notification, however, may be enhancing recidivism, and this is
definitely not the intended goal of such laws. One policy implication of these results is
that we may need to think carefully about how to punish sexual offenders to simulta-
neously deter first-time offenders and reduce recidivism. Notification laws, despite their
initial justification of protecting victims like Megan Kanka, do not seem to achieve
these concurrent goals.
While using fines and shaming punishments may require the use of fewer costly
resources compared to building and maintaining prisons, society obviously relies on
imprisonment as a common form of sanction, especially for violent criminals. Despite
its substantial cost, prison does offer one significant benefit over fines and other
unconventional forms of sanctions—prison can incapacitate criminals. Society may see
great value in incapacitating criminals likely to be repeat offenders. But incapacitation
is only one aspect of imprisonment. The threat of a prison sentence may also deter
crime. Chapter 4 will discuss the importance of understanding these two very different
roles of prison in reducing crime.
References
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393–422.
Economy, 76: 169–217.
Dynes, M.L. and Whitmer, H.E. (2013) “The Scarlet Letter of the Law: A Place for Shaming
Punishments in Arizona,” Phoenix Law Review, 6: 513–555.
Grogger, J. (1991) “Certainty vs. Severity of Punishment,” Economic Inquiry, 29: 297–309.
Kahan, D.M. (1996) “What Do Alternative Sanctions Mean?” University of Chicago Law
Review, 63: 591–653.
Kahan, D.M. (2006) “What’s Really Wrong with Shaming Sanctions,” Texas Law Review,
84: 2075–2095.
Karpoff, J.M., Lee, D.S., and Martin, G.S. (2008) “The Consequences to Managers for Financial
Misrepresentation,” Journal of Financial Economics, 88: 193–215.
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Meet the Goals of Sentencing Reform?” Washington University Journal of Law and Policy,
55: 243–263.
Lott, J.R., Jr. (1992) “Do We Punish High Income Criminals Too Heavily?” Economic Inquiry,
30: 583–608.
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Preliminary Empirical Observations,” Journal of Law and Economics, 42: 423–453.
Prescott, J.J. and Rockoff, J.E. (2011) “Do Sex Offender Registration and Notification Laws
Affect Criminal Behavior?” Journal of Law and Economics, 54: 161–206.
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temporary Criminal Justice, 21: 67–81.
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Offenders,” Journal of Law and Economics, 107–139.
4 Severity of punishment II
Prison and crime
In the U.S., there are several custodial jurisdictions in which a defendant may be
imprisoned. A prisoner may be under the control of the federal (that is, national)
authorities, the state (regional) authorities, or the local (city or county) authorities.
By the end of 2015, there were 2.2 million people imprisoned in the U.S. Approxi-
mately 215,000 were in federal prisons, 1.3 million were in state prisons, and 700,000
were held in local jails. Stated another way, 582 per 100,000 U.S. adult residents were
incarcerated. In state prisons by the end of 2015, 54.5 percent of inmates were
imprisoned for violent crimes (such as rape, murder, nonnegligent manslaughter,
robbery, and assault), 18 percent for property crimes (such as burglary, larceny, auto
theft, and fraud), 15.2 percent for drug crimes, and 11.6 percent for public-order
crimes (such as weapons charges, drunk driving, court offenses, and liquor law vio-
lations). In federal prisons, at the end of 2015, 7.7 percent of inmates were impri-
soned for violent crimes, 6.1 percent for property crimes, 47.5 percent for drug
crimes, and 38.2 percent for public-order crimes, including immigration violations
(Bureau of Justice Statistics, Prisoners in 2016).
Building and maintaining a prison system requires a substantial amount of
resources. One recent report (Wagner and Rabuy, 2017) lists an annual cost for public
corrections agencies (including prisons, jails, parole, and probation) at $80.7 billion.
To offset this cost, the most obvious direct benefit of prison is that it incapacitates
criminals. A criminal that is locked up can no longer commit crimes in public, and
this has a direct impact on reducing crime rates. Prison may also reduce crime
through a deterrent effect. However, while the threat of imprisonment may deter
crime, it also may not. That is, the existence of a deterrent effect of prison can only
be verified through empirical analysis. From a public policy perspective, then, if the
incapacitation effect can justify the substantial costs that are devoted to the building
and maintaining of prisons, why worry about the far more ambiguous deterrent
effect?
There are (at least) two main reasons to consider the deterrent effect of prison
separate from the incapacitation effect. First, if there is a deterrent effect, it enhances
the benefits of maintaining a prison system. Prison is a very costly sanction for society
to impose on convicted criminals, and an accounting of as many benefits as possible
can lead to a much clearer cost-benefit analysis of its net social value. Second, and
perhaps even more important, is that the optimal length of a prison sentence will
depend on whether the goal of prison is to incapacitate criminals or deter them (see
Shavell, 1987).
Severity of punishment II 35
Deterrence versus incapacitation
Assume for the time being that the only role of prison is to incapacitate criminals, that is,
there is absolutely no deterrent effect. How are the authorities to decide on the optimal
length of a prison sentence in this setting? They must consider when it is the right time to
release a prisoner. But this may have some unusual consequences. For example, consider a
woman who commits vehicular homicide by driving recklessly while she is sending a text
message on her cell phone. How long should she be imprisoned? From an incapacitation
perspective, it may be that she should not be imprisoned at all.
The main cost of imprisoning this woman involves the resources devoted to
keeping her in prison. Whatever this amount is, it provides the threshold for which
to compare the benefits of incapacitation. What are these benefits? What if we can
determine that this woman will never be involved in this type of crime again? Per-
haps her driver’s license can be permanently revoked. Or, we are convinced that she
will never carry a cell phone again. If we are assured that she will never commit
vehicular homicide again, what is the value of incapacitation in this case? There are
costs of keeping her imprisoned, but there are no offsetting benefits in terms of
crime reduction. The optimal sentence in terms of incapacitation, then, can very
well be zero.
Now consider a woman who is a car thief. Assume that she will always steal cars as
long as she is not imprisoned. While it may be true that car theft is not as serious a
crime as vehicular homicide, this woman can impose substantial crime costs on society
when not imprisoned. The optimal prison sentence for her may be very long. That is, it
may be worth bearing the costs of keeping her incapacitated to reap the greater benefits
of her reduced criminal behavior.
One implication of this reasoning is that, from an incapacitation perspective, the
severity of the punishment may not be directly related to the severity of the crime. That
is, it is not the crimes that were committed that matter here—it is the future crimes that
may be committed. So, how is the length of a prison sentence for incapacitation purposes
to be determined? It is important to consider when a prisoner is not likely to return to
committing crimes post-release. Similar to the idea of parole, there are likely to be some
general principles that can be applied. The prisoners least likely to return to criminal
activities may be the old or sickly, or those who furthered their education and developed
job skills while imprisoned. Whatever factors need to be considered, and as difficult as it
is to predict recidivism, this is precisely what needs to be done to determine the optimal
length of a prison sentence for incapacitation purposes.
From a deterrence perspective, however, the optimal prison sentence is likely to have
to be determined in a completely different way. Consider the woman who commits
vehicular homicide. If we want to deter that crime, the threat of a harsh prison sentence
may be necessary. Yet if, after convicted of the crime, the threat turns out not to be
binding because the criminal is quickly released due to optimal sentencing from an
incapacitation perspective, the deterrence effect will be greatly diminished. In addition,
what if it is known that once a prisoner turns 40 years old, she is very likely to be
released as the benefits of incapacitation may no longer be high. If a 30-year-old
criminal faces an optimal deterrence sentence of 20 years in prison for committing a
certain crime, the actual sentence will only be ten years. If criminals anticipate future
reduced sentences due to the costs of incapacitation, the deterrent effect of prison will
be diminished.
Another important distinction between the incapacitation and deterrent effects of
prison involves the trade-off between the certainty of punishment and the severity of
punishment. For deterrence, economic analysis generally considers all three components
of the expected punishment—the probability of apprehension, the probability of con-
viction, and the severity of the sanction—to have an impact on criminal behavior. In
addition, these separate components can be traded off against each other, allowing for
some intricate policy decisions in determining how best to use resources to deter crime.
With the incapacitation effect, while it is still the case that the authorities must decide on
a level of certainty of punishment, the length of the prison sentence primarily depends on
what harm the criminal is expected to impose on society post-release, and what the costs
are of keeping her imprisoned. Thus, the severity of the punishment is not likely to be
inversely related to the certainty of the punishment.
In all, due to the difference in policy implications when considering prison sentences
to incapacitate criminals or deter crime, it is important to distinguish between these
two effects when examining the impact of prison on crime rates. To determine if a
deterrent effect does exist, researchers must find something in the data that explicitly
allows for it to be separated out from the incapacitation effect. There have been a
number of studies, using various methodologies, that have attempted to do just that.
Several of these will now be discussed.
Sentence enhancements
Sentence enhancement laws abruptly alter prison sentences for specific types of crimes.
For example, if a current sentence for a violent crime is a ten-year prison sentence, a
sentence enhancement law that comes into effect may immediately change that sentence
to 15 years. Due to the nature of how these laws are enacted, it may be possible to
separate out the deterrent effect from the incapacitation effect of the increased
sentences.
If there is a sudden change in the length of a prison sentence associated with a spe-
cific crime, it is likely that, in the short run, the deterrent effect will be more relevant
than the incapacitation effect. A criminal who will be facing ten years in prison, and
may now be facing 15 years in prison, will still be facing at least the original ten-year
sentence. Thus, any change in the incapacitation effect would not come into play until
the start of the additional five-year sentence. This suggests that any immediate change
in the crime rate must be due to the deterrent effect of the sentence enhancement. In
the long run, however, both the deterrent effect and the incapacitation effect may be
reducing the crime rate.
One study (Kessler and Levitt, 1999) examines the effect on crime rates of Cali-
fornia’s sentence enhancement laws passed in 1982. These particular laws enacted a
five-year enhancement for each prior conviction for a serious felony or a one-year
enhancement for each prior prison term served for any offense, whichever enhancement
was greater. Furthermore, the revised laws eliminated the statute of limitations that
allowed the courts to consider the defendant’s record for at most only the past ten
years, prohibited judges from allowing the enhancements to be served concurrently
with the base sentence, and required the enhancements themselves to be served con-
secutively. In all, these were strict enhancements.
To control for confounding factors that may affect crime rates in general, the study
compares crimes that were eligible for sentence enhancements (murder, rape, robbery,
aggravated assault with a firearm, and burglary of a residence) to crimes that were not
eligible (aggravated assault without a firearm, burglary of a nonresidence, motor vehi-
cle theft, and larceny). Crime rates for the eligible crimes were found to have dropped
in the first year after the enhancements, relative to crime rates for the ineligible crimes.
The study attributes this short-term effect to the deterrent effect of prison.
From juvenile to adult

There are many laws and regulations that are applied differently to children than they
are to adults. Some activities that are legal for adults—such as buying alcohol or get-
ting a driver’s license—are not legal for children. Other activities—such as committing
murder and other violent crimes—while illegal for both groups, are punished very dif-
ferently by the authorities depending on the age of the offender. Typically, for an
identical crime, a juvenile is likely to be treated more leniently by the criminal justice
system than is an adult. This difference in treatment may be used to determine if a
deterrent effect of prison can be identified.
One study (Levitt, 1998a) examines juvenile crimes for children ages 15 to 17
between the years 1978 and 1993. This was a particularly violent period in American
history, as violent crime by juveniles and adults dramatically increased (by 107 percent
and 52 percent, respectively). During that period, punishment per crime (measured by
the number of prisoners per violent crime committed) fell 20 percent for juveniles but
increased 60 percent for adults. One question this study attempts to answer is: what
would have been the increase in the violent crime rate for juveniles had they faced the
same increase in punishment as did the adults? The answer is that the juvenile violent
crime rate would have increased by only 74 percent rather than by 107 percent. The
study uses this result to confirm that even juveniles respond to changes in the expected
punishment, as would be predicted in a model of rational criminal behavior.
It is important to note that during this period, and with this study’s data set, the
hypothesized increase in punishment for juveniles is not leading to a reduction in the
crime rate. Instead, it is leading to a reduction in the growth of the crime rate. Still, this
is a meaningful measure of crime reduction. It is possible to examine a period of time
and observe that crime rates have increased concurrently with punishment enhance-
ments and incorrectly conclude that criminals do not respond to increased punishment.
The important point to consider, however, is that the crime rate might have been even
higher if not for the increased punishment.
Demonstrating that juveniles do respond to changes in the expected punishment is
only the first part of the study’s analysis. The next step is to determine if the deterrent
effect of prison can be distinguished from the incapacitation effect. The study is able to
separate out these effects for juveniles who reach the age of majority, that is, the age at
which their status changes from juvenile to adult. There are different ages of majority
across states, typically ranging from 15 to 17. Furthermore, in each state exceptions
can be made and a juvenile offender could face adult sanctions. The important varia-
tion for this study’s purpose, however, is in how each state punishes an adult relative to
a juvenile.
The study finds that in states where adults are punished harshly relative to juveniles,
compared to states where the punishment differential is not as severe, there is a sub-
stantial drop in the crime rate for the cohort of criminals who have reached the age of
majority within the past year. This is very similar to the idea of a sentence
enhancement. In some states, juveniles reach a point in their lives when all of a sudden
they may face a substantial change in the punishment they receive for a particular
crime. In the short run, this punishment enhancement can reduce crime through a
deterrent effect, as opposed to an incapacitation effect.
The study concludes that increased punishment is an effective deterrence in reducing
juvenile crime rates. This result, of course, does not dictate that juveniles and adults
should be punished identically. Instead, it simply suggests that increased punishment
may be an effective tool. There are likely to be many other considerations to take into
account when confronting the social issue of juvenile crime.
Quality of prison life

Consider two criminals who are punished with identical prison sentences. By assump-
tion, these two criminals cannot be distinguished through the incapacitation effect—they
are equally incapacitated. Yet if there are other factors that allow for a distinction
between these two prison sentences, researchers may be able to use these factors to
identify a deterrent effect. One such factor may be the quality of prison life. If two sen-
tences of equal length can be distinguished by how harsh the prison environment is, it is
possible that one sentence can have a different impact on crime rates than the other
sentence. The simple prediction in this case is that, through the deterrent effect, the
harsher the prison environment, the greater the impact on reducing the crime rate.
There are many factors that affect the quality of life in prison. What are the living
conditions? Is there excessive prisoner congestion? Is there prisoner violence against
each other? Are there activities available such as exercise equipment, television, com-
puters, library access, job training, education, and so on? One study (Katz, Levitt, and
Shustorovich, 2003) uses as its measure of quality of prison life the death rate from all
causes (other than execution) among prisoners. Throughout the study’s sample period
1950 to 1990, the average annual number of prisoner deaths per 1,000 prisoners was
3.10. Although a further disaggregation of causes of death were not available for the
sample period, the study uses data for the representative year 1997 to show that
approximately 77 percent of prison deaths were due to illness, 5 percent to suicides, 3
percent to accidents or killing by another inmate, and 12 percent to unspecified causes
(and the remaining deaths due to execution).
Prisoner death rate is far from a perfect measure of the quality of prison life. To the
extent that prisoners die of natural causes, that may have little to do with an adverse
quality of prison life. Instead, it is likely that the prisoner death rate is correlated with
several unpleasant aspects of prison life, such as inadequate health care, suicide, and
homicide. As long as the death rate is a reasonable proxy for the quality of prison life,
it may be used to measure the effect of prison life on the crime rate. Furthermore,
criminals must have some understanding of the prison conditions for a deterrent effect
to exist. This may not be too difficult to accept. Many criminals have served time in
prison, or have interacted with other criminals who have served time. Criminals may be
familiar with prison conditions, especially for the regional prisons that are most likely
to be their home if incapacitated.
The main result of the study is that there is a negative relationship between the
prison death rate and the crime rate. This holds true for both violent crime and prop-
erty crime. If the prison death rate is a reasonable proxy for the quality of prison life, as
that quality is lowered the crime rate is also lowered. This result may suggest that an
important policy tool in deterring crime may be to purposely eliminate activities from
prison that improve the quality of prion life for prisoners. But, as the study points out,
there are going to be several other social concerns about the quality of prison life that
may be as important as the deterrence aspect. While poor prison conditions may create
an enhanced deterrent effect, they raise troubling questions about the appropriate
social goals of a prison system.
Crime substitutes
One interesting study (Levitt, 1998b) attempts to distinguish between, and measure the
relative importance of, the deterrent and incapacitation effects by building on three key
assumptions. First, the typical criminal must be a multiple offender. If the typical
offender is likely to commit only one crime in their lifetime, the incapacitation effect
would not reduce the crime rate unless the criminal could be imprisoned before the
crime is committed. Thus, any study attempting to measure the incapacitation effect
must be looking at criminals who are or would be (if not imprisoned) multiple offen-
ders. Second, the typical criminal must be likely to commit different types of crime. For
example, a particular criminal may not only be a car thief, but may also commit the
occasional burglary.
These first two assumptions appear to be well supported by real-world evidence. The
study cites evidence based on prisoner surveys that the average number of (nondrug-
related) crimes committed in the year preceding an inmate’s most recent arrest is
between 12 and 15. That is certainly an indication of multiple offense behavior. As for
committing different types of crimes, evidence indicates that many criminals do not
specialize in one type of crime. For example, only 1 in 20 released murderers who
commit crimes post-release will have their next arrest be for murder. For released rob-
bers and automobile thieves, the corresponding number is approximately one in three.
And for burglars and larcenists, the number is approximately one in two.
As for the third assumption, there must be some crimes that are substitutes for each
other. What this explicitly means is that, if the expected punishment is increased for
one particular crime only, a criminal will substitute away from committing that crime
and instead commit another crime. It is the existence of substitute crimes that allows a
distinction to be made between the deterrent and incapacitation effects.
With deterrence, an increase in the expected punishment of one crime will reduce the
occurrence of that crime, but increase the occurrence of a substitute crime. For exam-
ple, if the expected punishment for car theft is increased while the expected punishment
for burglary is kept the same, a car thief may decide to switch to burglary. With the
incapacitation effect, on the other hand, an increase in the expected punishment of one
crime will reduce the occurrence of that crime but also reduce the occurrence of a
substitute crime because incapacitation prevents the criminal from committing further
crimes.
The study examines seven crime categories to determine the extent of the deterrent
and incapacitation effects. For the least severe but by far the most common crimes
(accounting for 90 percent of all crimes)—aggravated assault, burglary, larceny, and
auto theft—the deterrent effect appears to be more important than the incapacitation
effect. For rape and robbery, the opposite appears to be true. Finally, for murder, nei-
ther effect appears to be particularly important. The study concludes that a deterrent
effect of prison does exist, and can be distinguished from the incapacitation effect.
The Italian Collective Clemency Bill
In the early 2000s, Italy was facing a serious problem with their prison system being
overcrowded. To help alleviate this problem, the Italian Parliament passed what was
called the Collective Clemency Bill in July 2006. The bill offered a striking solution to
the prison overcrowding problem—on August 1, 2006, an astounding 40 percent of the
Italian prison population was released.
The way the bill was implemented was that any current inmates who had committed
a crime before May 2006 had their sentences reduced by three years. Not all inmates
were eligible for release. Those who were convicted of certain serious crimes such as
organized crime, terrorism, kidnapping, felony sexual crimes, and so on did not have
their sentences reduced. Still, as nearly 20,000 inmates were released, researchers would
now be able to draw on a large and unique data set that could be used to address
questions about the potential deterrent effect of prison. One group of Italian research-
ers took advantage of the data to undertake two separate studies.
The first study (Drago, Galbiati, and Vertova, 2009) takes advantage of a built-in
variation in sentencing for criminals who are convicted of committing new crimes within
five years of their release. To whatever prison sentence a criminal receives for the new
crime, the remaining time he had when he was released is added to that new sentence.
For example, consider a criminal who had 12 months left to serve when he was released.
If he commits a new crime and is sentenced to 30 months, he will have to serve a total of
42 months. What is extremely useful about this particular policy feature is that it allows
for natural variation in the sentences offenders will face even if committing the same
crime.
Consider a second released prisoner who commits the exact same new crime as the
previous criminal and, therefore, will face an identical prison sentence of 30 months.
But when he was released from prison under the clemency bill, he only had three
months left to serve. This makes for a total 33-month sentence for the new crime, as
opposed to the other criminal’s 42-month sentence. If we now consider many criminals
who commit the same crime after being released, each will face an enhancement to the
30-month sentence of anywhere from 1 to 36 months (as only criminals with three
years or less left on their original sentences were released).
As a result of the clemency bill, criminals convicted of committing similar crimes
will face different sentences. This gives the study the variation in sentencing needed to
examine the deterrent effect of prison. The study’s main result is that an increased
prison sentence does provide a deterrent effect. Quantitatively, it finds that a one-
month increase in the prison sentence for a new crime reduces the probability of that
crime being committed by approximately 1.3 percent, and this is a fairly large effect for
just a one-month enhancement.
The second study (Drago, Galbiati, and Vertova, 2011) asks a different question: do
harsh prison conditions enhance or reduce recidivism? If prison conditions are pre-
dicted to deter crime, the criminals most likely to be affected are those who have
actually served time and have first-hand knowledge of the conditions. The Italian
clemency bill allowed for the release of precisely this type of criminal. How will their
knowledge of the prison conditions they just left behind affect the likelihood that they
will continue to commit crimes upon their release? The answer to this question is, in
theory, ambiguous. If these former inmates find the conditions overly harsh, they may
be deterred from committing additional crimes to avoid future incarceration. On the
other hand, harsh conditions may lead to a “hardening” of inmates, making them more
likely to be future criminals
Not only were there a large number of prisoners released under the clemency bill,
there were a total of 198 prisons that were involved. This allows the study to examine the
post-release criminal behavior of a large number of former inmates who were exposed to
various degrees of harsh prison conditions. While it is difficult to gauge the harshness of
prison conditions, the study attempts to do so with four different measures.
The first measure is the extent of overcrowding. The more crowded is a prison, the
more unpleasant living conditions are likely to be. The second measure is the number
of prison deaths (from all causes) during the inmate’s stay (as seen in the study by
Katz, Levitt, and Shustorovich, 2003, discussed above). The third measure tries to
capture prisoner isolation by using the distance of the prison from the chief town of the
province the prison is located in. The idea here is that the further the prison is from a
major town, the more costly it is for volunteers to help out at the prison with activities
like job training or education, the less media attention there may be on prison condi-
tions, the more difficult it is for visitors to travel to the prison, and so on. The fourth
measure, related to the third, looks at the actual number of volunteers who help out at
the prison. The more volunteers there are, the less isolated are the prisoners from other
members of society.
The important point about these measures is not that they perfectly account for
prison harshness, but that they are somewhat related to such harshness. If this is the
case, the study finds that prison harshness and isolation (across all four measures used)
leads to an increase in post-release criminal behavior. Thus, while in theory prison
harshness has an ambiguous effect on post-release criminal behavior, this one study
finds that it leads to an increase in recidivism. The policy implication of this result is
that to reduce recidivism, careful attention must be given to the “hardening” effect of
prison life.
Measuring the incapacitation effect

When empirically examining the deterrent effect of prison, the main objective is to
determine if such an effect exists. How big the effect is quantitatively, while important,
is usually of secondary concern. The existence of the incapacitation effect, on the other
hand, is typically thought of as being obvious. As long as prisoners are not escaping
each night to commit crimes in public, the crime rate for incapacitated criminals is
zero. But from a quantitative perspective, the size of the incapacitation effect is hugely
important to consider as it represents one of the major benefits of building and main-
taining the prison system. From a public policy perspective, the key question is: how
many crimes are not being committed by imprisoned criminals?
How are we to answer this counterfactual question? Consider the Italian Clemency
Bill once again. Thousands of Italian prisoners were suddenly released. What if we
follow their behavior post-release and observe how many crimes they commit? While
this will give us a measure of how many crimes they wouldn’t commit if they were still
incapacitated, it is far from a perfect measure of the incapacitation effect. Recall that
the prisoners who were released were not the worst offenders in the Italian prison
system at the time, and it is the worst offenders who are expected to have the highest
rates of recidivism and commit the most serious crimes.
Ideally, what is needed is a way to measure the behavior of a representative, or
average, criminal. Assume that you could randomly assign criminals to short or long
prison sentences. The randomness assures that you are not distinguishing between
criminals based on their criminal histories. If you then follow the post-release behavior
of the “lucky” criminals who receive the short sentence, you can use this to guess at the
post-release behavior of the “unlucky” criminals who receive the long sentence. As
these criminals are, by assumption, the same on average, observing how many crimes
the released group commits provides a good guess at the number of crimes the inca-
pacitated group does not commit. Of course, the conditions necessary to replicate this
ideal study do not exist in the real world. But one study (Owens, 2009) offers a clever
way to mimic this ideal setting by taking advantage of a sentencing guidelines change
in Maryland.
The state of Maryland (as well as many other states and the federal government)
uses sentencing guidelines to determine how a convicted offender will be sentenced
based on two main criteria—the severity of the crime (the offense score) and the
offender’s criminal history (the offender score). There are four elements considered in
calculating the offender score: prior adult criminal history; juvenile criminal history;
parole violations history; and current relationship to the criminal justice system
(incarcerated, on probation, and so on). On July 1, 2001, Maryland changed the
guidelines in a significant way.
Prior to July 1, an offender’s juvenile record was excluded from the history when the
offender reached the age of 26. After that date, the juvenile record was excluded at the
younger age of 23. In other words, this particular change in the guidelines acts as a
sentence dis-enhancement. For convicted criminals between the age of 23 and 26, their
offender scores would now be lower due to the weakening of one of the four elements.
Furthermore, this change has some nice features that makes it suitable for examining
the incapacitation effect of prison.
The motivation for the change was a belief Maryland’s sentencing guidelines were
not in line with those from other states. Thus, it was a not a change in the crime rate
that led to the change in the guidelines. This helps break the reverse causation problem
of crime rates leading to expected punishment changes, allowing the study to focus on
how the sentencing changes will impact crime rates. Also, the sentencing change was
not well publicized, suggesting that it may not have had much of a deterrent effect. For
example, between 1998, when the reforms were first being considered, and 2004, there
was no mention of the change in major and local Maryland newspapers. If criminals
were not well informed about this change, its ability to impact crime would primarily
be through its incapacitation effect.
Because of the guideline changes, the study can distinguish between a group of
“lucky” criminals and “unlucky” ones, depending on when they were sentenced. After
July 1, 2001, for criminals aged 23, 24, and 25, they were lucky to face a guidelines
change that reduced their offender score. The study then can calculate the sentence they
would have received had they been unlucky and sentenced before the change. Any
crime the lucky criminals commit when they are released would not have been com-
mitted had they been unlucky and still imprisoned. In effect, the sudden change in the
guidelines had a random impact on criminals of a certain age, allowing the study to
more accurately examine the incapacitation effect.
With this data set, the study presents some quantitative results. The lucky criminals
who were released were arrested at an average rate of 2.8 times per year, and were
involved in approximately 1.5 serious crimes while they would have otherwise been
incapacitated had they been unlucky. Unsurprisingly, the incapacitation effect is found
to reduce crime. Or, in the context of this study, the lack of incapacitation is found to
increase crime. What the study does next is the key point: is this reduction in crime
enough to warrant the cost of incapacitation?
The study focuses on the marginal cost of incarcerating one additional prisoner, as
opposed to the average cost. The sense to this approach is that while the average cost
takes into account all of the costs of building and maintaining a prison, much of this
cost is not affected by imprisoning one more offender. For example, one more prisoner
is not likely to warrant the building of an extension, or the hiring of more adminis-
trative staff. The marginal cost of incapacitation, then, is directly comparable to the
marginal benefit in terms of crime reduction. Although the study estimates and pre-
sents a range of marginal costs and marginal benefits, in most scenarios the marginal
benefits outweigh the marginal costs. In short, at least according to this one study,
there is typically at least a slight net social gain attributed to the incapacitation effect.
The three-strikes law

With a clear understanding of the difference between the deterrent and incapacitation
effects, various prison sentence policies can be thoroughly examined. One such policy
is the three-strikes law, as enacted in California in March 1994. A three-strikes law
focuses on habitual criminals, greatly enhancing their prison sentences for additional
convictions. To earn a first strike, a serious crime must be committed (such as murder,
rape, drug sales to minors, and several others). While not all crimes qualify as a first
strike, the important aspect of the law is that almost any crime can qualify as a
second strike, even if it would not have qualified as a first strike. The punishment for
a second strike is twice the current offense term. And for the third strike, regardless of
the crime, a prison term of 25 years to life is imposed. This severe prison sentence can
seem unjustified at times, and its harshness eventually led the U.S. Supreme Court to
weigh in on California’s three-strikes law.
The case the court considered involved a man who stole three golf clubs valued at a
retail price of $399 each. As he had several major and minor felonies in his criminal
history, this crime qualified as a third strike and he was convicted and sentenced to 25
years to life imprisonment. The court was asked to consider if the punishment for this
minor crime was “cruel and unusual,” thus violating the Eighth Amendment of the U.S.
Constitution. With a 5–4 decision, the court upheld California’s right to apply the three-
strikes law in this, and similar, cases.
Severe criticism followed the court’s decision as, at first blush, it appears ludicrous to
punish such a minor crime with such an incredibly harsh prison sentence. But what
does economic reasoning suggest about the sense of the severe third-strike punishment?
In general, as argued above, the optimal prison sentence length may be different for
deterrence purposes versus incapacitation purposes. But for the habitual criminal, a
long prison sentence may be sensible from both perspectives. The more difficult it is to
deter the habitual criminal, the longer the prison sentence needs to be to provide a
credible threat. And if the habitual criminal cannot be deterred, a long sentence for
incapacitation reasons may be appropriate, as upon release it is expected that this type
of criminal will continue to commit crimes. Would it be more efficient to incapacitate
the habitual criminal for 25 years to life, or to continually deal with (what is believed to
be the inevitable) many future episodes of arrest, conviction, and imprisonment?
Regardless of the benefits of the three-strikes law, it is unambiguous that severe prison
sentences require the use of substantial costly resources. Are these costs justified? A
number of economic studies have attempted to address this question. The first study
(Marvell and Moody, 2001) does not find evidence of the three-strikes law reducing
crime, but does find that the laws enhance the homicide rate. With two strikes, a rational
criminal may realize that the next crime committed, no matter how severe, will lead to a
very long prison sentence. This will tend to provide the incentive for the criminal to
commit more severe crimes, and possibly more violent crimes, especially in an attempt to
lower the certainty of punishment (by killing witnesses, for example). The study com-
pares homicide rates in the 1990s between 24 states that had three-strikes laws to the
other 26 states that did not. Quantitatively, the study finds that the laws are associated
with a 23 to 29 percent increase in the long-run homicide rate, creating an annual social
cost of nearly $11 billion.
A second study (Iyengar, 2011) offers a clever way to isolate the impact of the three-
strikes laws on criminal behavior. Consider two criminals—Bob and Joe. Both crim-
inals commit two crimes, a theft and a burglary. The difference between them, though,
is that Bob first committed a theft then a burglary, and Joe first committed a burglary
then a theft. Does the order in which these two crimes are committed matter? Without
the three-strikes law, the order would not matter. Both Bob and Joe have similar
criminal histories, and if they each commit an identical third crime, they would face
similar sentences. But with the three-strikes law, the order could matter.
In Bob’s case, the theft was not considered a first strike, but the burglary was. In
Joe’s case, the burglary was considered a first strike, making the theft eligible to be
classified as a second strike. If they both commit an identical third crime, Bob would
face sentencing for that crime as a second strike, but Joe would face sentencing as a
third strike. Thus, two criminals with similar criminal histories would not face similar
sentences. This variation in sentencing allows the study to compare pairs of criminals
with the same criminal history, but a different order of crimes, before and after the
enactment of the California three-strikes law to determine the effect of this law on
criminal behavior.
The study finds that the three-strikes law reduces criminal activity in California by 20
percent for second-strike eligible offenders and by 28 percent for third-strike eligible
offenders. The study also finds (similar to the first study above) that criminals facing
third-strike sentencing tend to commit more severe and violent crimes. But from a cost-
benefit perspective, taking into account the impact of the laws on nonviolent and vio-
lent crimes, the study finds that while $200 million in annual crime costs are saved, this
is at the expense of $500 million in annual prison costs.
A third study (Helland and Tabarrok, 2007) also finds a deterrent effect in Cali-
fornia of the three-strikes law, with approximately 31,000 fewer crimes being com-
mitted annually. This is estimated to create a per crime saving of $34,000. However,
with an increase in the number of prisoners sentenced under the law, and an
increase in the average prison sentence being 16.6 years, the study estimates that the
cost of imprisonment per crime avoided is $148,000. Thus, for each crime avoided,
the cost of imprisonment under the three-strikes law is more than four times the
benefit.
The privatization of prisons
A common issue in many social policy debates is the role of private versus social con-
trol of resources. Are private markets or socialized markets better suited to provide
health care, offer schooling, build highways, and so on? The succinct argument in favor
of privatization is that, relative to social systems, private firms use resources more effi-
ciently in the provision of services. The goal of a private firm is to maximize profit,
which requires (for any given level of services) cost minimization. A private firm makes
investment decisions typically based solely on the dollar bottom line, whereas in a
social system, politicians may have additional social and political objectives. Politicians
do not directly bear the costs of their actions; taxpayers do. Cost minimization, then,
may not be of primary importance in social systems.
On the other hand, a common criticism of privatization is that a private firm may
cut corners and provide poor-quality services in order to enhance their profit margin.
And, even in the case where private firms do not or cannot slack, there may be other
legitimate social objectives that a private firm would ignore to the possible detriment of
social welfare. For example, is it a sound social policy to provide education to all
children, or only to those whose parents could afford to send them to private schools?
Should health care be available to all, or only to those who can afford the services or
the insurance premiums? Exactly what constitutes “good” educational or health-care
services? There are no easy answers to these questions, especially due to the fact that
the answers rely on subjective policy goals. Nevertheless, these are important social
policy issues.
Even if there is a wedge between private and social objectives, this does not rule out
the possibility of the state enlisting private companies to further social goals. What is
needed to provide the private companies with the appropriate social objectives, how-
ever, are well-specified contracts that lay out the ground rules of operation. With well-
specified contracts, the state may have the opportunity to take advantage of the
potential cost efficiencies a private company can provide, as well as sustain any other
objectives that are less likely to be in the interest of private operators. But two sub-
stantial hurdles remain: it may be difficult, if not impossible, to negotiate fully specified
contracts; and, even with fully specified contracts, it may be difficult to enforce the
contractual terms (see Hart, Shleifer, and Vishny, 1996).
The running of prisons offers an excellent illustration of the potential tensions
between private and social interests. Private prisons are fairly common, and becoming
more common, in the U.S. In 2005, of the 2,236 adult correctional facilities, 102 were
federal, 1,719 were state, and 415 were private-run operations. Just five years earlier in
2000, there were only 264 private prisons (and only 110 in 1995). Nearly all of the
growth in the number of prisons between 2000 and 2005 can be attributed to the building
of private prisons. Finally, in 2005, 105,451 prisoners were housed in private prisons,
making up nearly 7 percent of the total prison population (Bureau of Justice Statistics,
Census of State and Federal Correctional Facilities, 2005).
In theory, the services associated with prison can easily be provided through private
or public ownership. These services can be divided into three main categories—order,
amenities, and rehabilitation. Order includes such services as security, preventing
escapes, and disciplining prisoners. Amenities includes food preparation, health care,
libraries, and entertainment activities. Rehabilitation includes vocational training and
other educational activities. The quality of many of these services can be defined by
best-practice standards issued by the American Correctional Association (A.C.A.).
Prisons wishing to maintain accreditation must adhere to a majority of over 400 of the
A.C.A. standards. Thus, if the state wishes to contract with private prisons, contracts
can be specified such that the prisons can be held to well-publicized and well-defined
standards. And, for many of the services, contracting does appear to provide the
necessary incentives for private prisons to maintain appropriate standards.
But for some prison services, contracting may be insufficient. Two areas of concern
in terms of the private provision of prison services involve the use of force and the
quality of the personnel. Obviously, controlling a population of prisoners will often-
times require force. How much force in any given situation is warranted? Applying
general standards to what will usually be specific episodes of prisoner misconduct may
be difficult to do. Furthermore, if private prisons save on costs by hiring less able
guards, or by providing poorer training opportunities, prison personnel may simply
lack the skill to resolve conflicts with subtle methods that don’t overrely on the use of
force. If contracting cannot adequately guarantee that a private prison will hire the
appropriate quality personnel, or have their personnel act within acceptable bound-
aries, the case for privatization is weakened. This reasoning may help account for the
fact that private prisons are most often used for minimum security, juvenile corrections,
and halfway houses. (Of the 415 private prisons in 2005, 364 were minimum security
facilities. Bureau of Justice Statistics, Census of State and Federal Correctional Facil-
ities, 2005.) Maximum security institutions are typically under the control of state or
federal authorities.
While private prisons may have a serious downside in terms of quality of services
provided, from an economic perspective they are generally thought of as providing
these services by using resources efficiently. It is hard to imagine economists criticizing
private prisons for being too cost efficient, yet there is an argument against privatiza-
tion for precisely this reason. Some argue that if private prisons are cost efficient, too
many of them may be built. But what is meant by too many? For example, much prison
space is occupied by criminals involved in some aspect of illicit drug dealing. There are
some in society who feel that drugs should be decriminalized, or at least that drug
users should not be heavily punished. If private prisons are relatively inexpensive to
build and maintain, and it is politically expedient to imprison drug users, then from
this perspective too many prisons may be built. Furthermore, any low-resource cost
punishment may be overused by the authorities (see Friedman, 1999). But this leads to
an important question: what is it that the authorities care about when deciding which
sanctions to impose on various criminals, and are these concerns compatible with what
others in society care about?
The harshness of sanctions

In 1994, Michael Fay, an 18-year-old American man living in Singapore at the time,
was convicted of vandalizing cars. He was sentenced to four months in jail, a fine
equivalent to approximately U.S. $2,200, and six strokes on his buttocks with a rattan
cane. While the jail sentence and monetary fine would have gone largely unnoticed by
anyone in the U.S., the punishment of caning was not. No less a person than President
Bill Clinton requested that Fay be pardoned from the caning, and several other pro-
minent politicians joined in the request. Major newspapers published editorials con-
demning the caning, and many U.S. citizens were appalled by what they believed was
an overly harsh sanction. (Although many citizens supported Singapore’s right to
choose their own sanctions or felt that caning was an appropriate punishment.) The
Singapore authorities responded to these appeals by reducing the number of strokes
from six to four.
From an economic perspective, a sanction such as caning offers one substantial
benefit—it is a very low-resource cost punishment to impose. Another (difficult to
quantify) benefit is that caning can lead to a reduction in crime through a deterrent
effect. From this perspective, not only can one question the uproar associated with
Michael Fay’s punishment, but also wonder why caning doesn’t have more universal
appeal, especially in the U.S. A low-cost sanction that has the potential to deter crime
is precisely what rational crime analysis is all about. This is why, as discussed in
Chapter 3, Becker’s (1968) seminal economic analysis of expected punishment suggests
setting a low certainty of punishment coupled with a high monetary sanction.
Recall, however, that there can be problems with low-resource cost punishments such
as fines or forfeiture of property. Even if the authorities do care about the deterrence
value of these sanctions, they may also act in a self-interested manner and overdeter
certain crimes for personal financial gain. This can lead to an inefficient use of
resources. But what about the authorities using a very low probability sanction that is
physically harsh, such as caning? Unless the authorities are sadists, there is no personal
gain that can be achieved from caning criminals. If caning is a low-resource cost sanc-
tion to impose, especially relative to prison sentences, why do we not commonly
observe such a physically harsh sanction?
Perhaps the simplest explanation for why physically harsh sanctions are not used is
that the majority of people in society don’t have a taste for such forms of punishment.
This may account for why there is a constitutional protection against cruel and unusual
punishment in the U.S., and why there was strong public sentiment against Michael
Fay’s caning sentence. But who is to decide whether a particular form of punishment is
overly harsh? Politicians? The public? International organizations? How about the
criminal facing the harsh sanction? If it is the criminal, the concept of “harshness” may
take on a whole different meaning.
Put yourself in the position of Michael Fay, but with the following slight hypothe-
tical change in the scenario. You are given the choice to avoid the six strokes with the
cane if you agree to add 12 months to your prison sentence. Which would you prefer?
If you choose the caning, how about if the offer was instead six months in a Singapore
prison? Three months? One month? What this suggests is that there has to be some
prison sentence that equates the severity of the two sanctions. Relative to that prison
sentence, then, caning may very well not be seen as cruel and unusual to the criminal.
But if caning can be equated to an equally deterring prison sentence, it can offer that
degree of deterrence at a lower resource cost compared to the prison sentence.
Of course, if a punishment like caning does not offer a sufficient deterrent effect, a
more resource costly sanction like prison may be desirable. On the other hand, caning
may offer more deterrence compared to other forms of punishment, such as probation
or fines. The important point here is that when evaluating a punishment like caning
that is believed by many to be overly harsh, the meaning of “harsh” also needs to be
considered from the offender’s perspective and relative to other forms of punishment.
In short, while society may not have a taste for the apparently cruel nature of a pun-
ishment such as caning, its likely inexpensive deterrence value may more than offset
that particular problem.
But this brings us back to the always difficult-to-resolve issue of determining social
objectives. One advantage of considering punishment strictly from a deterrence per-
spective is that it allows the authorities to compare the costs and benefits of setting the
expected punishment across a wide variety of options without being concerned with how
these options are perceived by society at large. The only concern in this case is for the
authorities to determine the optimal level of expected punishment and figure out how to
allocate resources efficiently across the probability of apprehension, the probability of
conviction, and the nature and severity of the sanction. The problem here is that there is
no reason to believe that the authorities only care about efficient deterrence, and even if
they do, how society-at-large feels about different forms of punishments may be extre-
mely important to consider.
Many in society may feel that shaming punishments are too soft, while physical
sanctions such as caning are too harsh, or that fines unfairly favor wealthy offenders
over poor ones. And if prison is the sanction that can best be uniformly accepted across
a wide variety of people (as suggested by Kahan in Chapter 3), we must note that there
is no shortage of complaints about various aspects of the prison system (such as over-
crowding and poor living conditions in general). And while prisons require substantial
resource costs to build and maintain, especially when compared to low-resource cost
sanctions such as shaming, fines, and caning, we have seen that it does offer one sub-
stantial advantage over these other sanctions—prison can incapacitate criminals, thus
reducing recidivism. But incapacitation can lead to an unusual concern: is it possible
that an equal prison sentence for a wealthy and poor defendant may be a harsher
sanction for the wealthy defendant?
The inequality of equal prison sentences

A commonly held criticism of the criminal justice system is that wealthy defendants
and poor defendants are not treated equally. If we assume that prison sentences are
largely determined by the nature of the crime as opposed to the wealth of the criminal,
a wealthy defendant and a poor defendant may face the same prison sentence for the
same crime if convicted. But if the wealthy defendant can afford more effective legal
representation, he can lower the probability of conviction. Thus, the wealthy defendant
may face a lower expected punishment than the poor one, even if they face the same
sanction. In other words, it is often argued that wealthy defendants are able to subvert
justice. If this is true, and it is deemed to be a social problem, there may be ways to
remedy it.
First, constraints may be imposed on how much a wealthy defendant can spend on a
legal defense, possibly resulting in a higher probability of conviction. Second, if the
wealthy are permitted to spend at will, they can be sentenced to longer prison sentences
than the poor, thus balancing out the lower certainty of punishment with a higher
severity of punishment. Finally, more resources can be provided to the poor so that
they can mount stronger defenses and lower their probability of conviction. This last
option, of course, would require more resources to be allocated to defending the poor,
creating an additional concern of how best to use public resources in pursuing criminal
justice goals.
Alternatively, it may not be too concerning that the wealthy defendant lowers his
probability of conviction if it is the case the equal prison sentences are perceived as
being a more severe sanction for the wealthy defendant relative to the poor one. If this
is the case, the lower probability of conviction is offset (to some extent) by the more
severe sanction. By why might an equal prison sentence be perceived as more severe for
the wealthy defendant relative to the poor one? The key to this seemingly strange
argument involves the concept of opportunity cost. An opportunity cost takes into
account a foregone alternative. For example, your opportunity cost of currently reading
this book is what you would be doing instead. Would you be sleeping, eating, watching
a movie, or reading another book? Whatever your best foregone alternative is, that
makes up part of the cost of you reading this book.
There is no doubt that prisoners face substantial opportunity costs. Of primary
importance here is the loss of legitimate income. The more income a prisoner could be
making if not imprisoned, the higher the opportunity cost of being imprisoned. To
accept the argument that an equal prison sentence is harsher for a wealthy defendant
compared to a poor defendant, one must accept the argument that a wealthy defendant
faces a higher opportunity cost of being imprisoned. If we consider only lost income,
this argument may be valid. But there are many other opportunity costs of being
imprisoned, such as lost time with family and friends, and not being able to enjoy cer-
tain leisure activities. So while poor defendants may face substantial opportunity costs
of being imprisoned, the typical economic analysis often focuses on the opportunity
cost of lost income.
If it is optimal for a particular crime to warrant a particular expected punishment,
and if the opportunity cost of a specific prison sentence is higher for a wealthy defen-
dant relative to a poor one, the probability of conviction must be set lower for the
wealthy defendant. If not, an identical prison sentence for all defendants cannot lead to
an identical (and optimal) expected punishment for everyone. For example, with an
equal probability of conviction, if a prison sentence is set just long enough to optimally
punish wealthy defendants, poorer defendants will be underdeterred. If the sentence is
set long enough to optimally punish poor defendants, wealthier defendants will be
overdeterred. And if the sentence is set to optimally punish the average defendant,
wealthier defendants will be somewhat overdeterred while poorer defendants will be
somewhat underdeterred. Thus, allowing wealthy defendants to “subvert” the criminal
justice system may actually be leading to equal expected punishments across wealth
classes (see Lott, 1987; but also see Garoupa and Gravelle, 2003).
Alternatively, it may seem reasonable to devote fewer resources to incapacitating
wealthy defendants by lowering their sentences (assuming they will be restricted in
lowering their probability of conviction). This may be very difficult to do correctly.
Opportunity costs can be highly subjective in nature, so it may be difficult to differ-
entiate prison sentences based on opportunity costs. If all defendants face the prison
sentence for the same crime, the defendants themselves can decide how many resources
to devote to their defense. It is important to note, however, that while wealthy defen-
dants may try to lower their probability of conviction, prosecutors may counter this by
increasing the amount of resources they use in trying wealthy defendants. But how well
can prosecutors stretch their resources to combat wealthy defendants?
It may appear that a sensible prosecutorial goal would be to try to equate the prob-
ability of conviction across different types of defendants charged with committing a
specific crime. This suggests that more resources should be devoted to try defendants
who mount more expensive defenses. But there will be some problems with this
approach (see Goodman and Porter, 2002). First, wealthy defendants may have far
more flexibility in their spending than prosecutors. If a prosecutorial budget can only
be stretched so far, wealthy defendants may be able to successfully outspend the pro-
secutors, thus leading to lower conviction rates relative to the poor. Second, even if
prosecutors can match wealthy defendants, there is the issue as to whether the addi-
tional resources can be put to more efficient use in other aspects of setting the expected
punishment, such as with increasing the probability of apprehension. Finally, if too
many resources are moved from prosecuting poor defendants to prosecuting wealthy
ones, the poor defendants may face too low a probability of conviction. That is, poor
defendants may be underdeterred. Actually, some scholars believe that the existence of
wealthy defendants in and of itself benefits poor defendants because of this last point.
The argument being made here is not that the wealthy should be less severely pun-
ished than the poor. The argument is that if it is desirable to maintain an equal level of
expected punishment across different defendants committing the same crime, equal
conviction rates and equal prison sentences for all defendants may not achieve that
goal. If prison imposes more of a cost on a wealthy defendant, a lower conviction rate
is necessary to maintain a consistent expected punishment across income groups. It
should also be mentioned that the extra resources the wealthy devote to mounting their
defenses are also part of their all-encompassing sanction. As discussed in Chapter 3,
punishment is a broader concept than whatever sanction the authorities choose to
impose.
In all, thinking about punishment from a rational crime perspective is only one way
to approach these issues, not the way. Social welfare may legitimately be concerned
with numerous factors that go way beyond the efficient use of resources. But efficiency
can be an important aspect to consider, and it certainly allows for more nuance in the
debate about social policy designed to reduce crime. Yet regardless of how controversial
any of the sanctions so far discussed appear to be, Chapter 5 deals with (arguably) the
most contentious of all sanctions—the death penalty.
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5 Severity of punishment III
The death penalty and crime
By year end 2016, a total of 2,814 inmates were under sentence of death in the U.S.
California had the largest number of death row inmates with 742, followed by Florida
with 382 and Texas with 244. Of the total number of death row inmates, 55.4 percent
were White, 42.3 percent were Black, and 2.3 percent were categorized as “other”
(including American Indian and Asian). Hispanics are included in the White or Black
category, but when considered as a separate group, they made up 14.3 percent of the
death row inmates. As for gender, 98.2 percent of the inmates were male. A total of 20
of the inmates were executed in 2016 (compared to 60 in 2005), with Georgia having
the most (9) and Texas having the second most (7), and only three other states (Ala-
bama, Florida, and Missouri) having any at all. There were 16 states, and the District
of Columbia, that were without the death penalty in 2016 (Bureau of Justice Statistics,
Capital Punishment, 2016).
If you’ve ever wondered why economics is sometimes referred to as the “dismal sci-
ence,” a thorough reading of the economic research on the deterrent effect of the death
penalty may help explain it. Consider the following conclusions from two studies that
review the literature on the deterrent effect of the death penalty:
Recent empirical studies have shown, without exception, that capital punishment
deters crime. Using large data sets that combine information from all fifty states
over many years, the studies show that, on average, an additional execution deters
many murders.
(Shepherd, 2005)
The U.S. data simply do not speak clearly about whether the death penalty has a
deterrent or anti-deterrent effect. The only clear conclusion is that execution policy
drives little of the year-to-year variation in homicide rates. As to whether execu-
tions raise or lower the homicide rate, we remain profoundly uncertain.
(Donohue and Wolfers, 2005)
These two quotes, from economic researchers who have devoted much attention to
the empirical verification of the deterrent effect of capital punishment, succinctly sum
up a common problem found in most (if not all) empirical debates in economics:
empirical studies simply lack the ability to definitively resolve issues. How else do you
explain conclusions that range from “studies have shown without exception” to “we
remain profoundly uncertain” that a deterrent effect exists, even when economists are
reviewing the same body of scholarly research?
Severity of punishment III 53
These opposing empirical views often paint economics in a bad light. Can there be
no consensus among economists when it comes to important social policy issues? It is
important to recognize that these empirical inconsistencies have little to do with the
way economists use economic reasoning in evaluating the potential for the death pen-
alty to deter murder. In a rational crime model, the fundamental theoretical under-
pinning of the deterrent effect of capital punishment is well accepted: if the death
penalty increases the expected punishment of committing murder, economists predict
that fewer murders will occur. But even this theoretical prediction can lead to two
possibilities: the death penalty may increase the expected punishment, or it may
decrease it.
The most obvious reason why the death penalty can increase the expected pun-
ishment is that it may be perceived by criminals as being a harsher sanction than
any other alternative. But this need not always be the case. What if murderers
prefer being executed to spending the rest of their life in prison without the possi-
bility of parole? For these criminals, the severity of punishment is actually reduced
with capital punishment. Furthermore, when considering how the death penalty
impacts the expected punishment, we have to consider its effect on the certainty of
punishment.
Consider the probability of conviction, a key component of expected punishment. It
may be that in capital cases, juries worry about a wrongful conviction leading to a
wrongful execution; thus, they may impose a great evidentiary standard on the prose-
cution in proving guilt beyond a reasonable doubt. Furthermore, defendants facing
capital punishment may mount stronger defenses compared to when they face a less
severe sanction. Both of these factors can lower the probability of conviction and
reduce the expected punishment of the death penalty. And it’s possible that some
murderers may not respond to changes in the expected punishment, such as may be the
case with spontaneous crimes of passion.
For these, and other, reasons, even sound economic reasoning accepted by a con-
sensus of economists does not mean that theoretical predictions are unambiguous. The
issue as to whether the death penalty deters murder must be resolved empirically. And,
as discussed in Chapter 2, it is the nature of empirical methodology that creates the
lack of consensus across the results of such studies, as will be made apparent in the
following section.
Does the death penalty deter murder?

When empirically attempting to verify the deterrent effect of the death penalty, it
is common for studies to estimate what is known as a life-life trade-off. This
trade-off represents the numbers of lives saved, or murders deterred, for each
convicted murderer who is actually executed. One representative study (Dezh-
bakhsh, Rubin, and Shepherd, 2003), using data from 1977 to 1996, finds the life-
life trade-off to be, on average, 18 (with a margin of error of plus or minus ten).
Thus, the study concludes (along with a number of other studies not discussed
here), that there is an empirically verifiable deterrent effect associated with the
death penalty.
While it is a fact that there is empirical evidence to support the existence of the
deterrent effect of the death penalty, the studies that find such evidence have been
subjected to serious critical review. One study (Donohue and Wolfers, 2005) uses the
data sets from these previous studies and examines the robustness of the results; that is,
do the results of these studies stand up to small changes in the empirical specifications?
The study strongly concludes that these previous results are not robust to specification
changes, and casts doubt on the level of confidence that can be placed on the empirical
verification of the deterrent effect of the death penalty. This critical review of the lit-
erature has been updated by a National Research Council report (2012, p. 2):
The committee concludes that research to date on the effect of capital punishment
on homicide is not informative about whether capital punishment decreases,
increases, or has no effect on homicide rates. Therefore, the Committee recom-
mends that these studies not be used to inform deliberations requiring judgments
about the effect of the death penalty on homicide.
Thus, to say that studies that verify the existence of the deterrent effect do so without
exception (especially considering studies undertaken since 2005) is a very difficult claim
to accept.
It is important to recognize that these critical reviews are not claiming that there is
no deterrent effect associated with the death penalty. Instead, they are suggesting that
the available empirical evidence is not conclusive as to whether such an effect exists.
One serious, and well-recognized, problem with empirical studies examining the deter-
rent effect of the death penalty concerns the “thinness” of the available data. Between
the years 1930 and 2005 in the U.S., there were a total of 4,863 executions (for an
annual average of approximately 64). Between the years 1968 and 1976 there were
none, as a national moratorium was in place. After the moratorium was lifted, there
were 1,004 executions between the years 1977 and 2005 (for an annual average of
approximately 35), but there were more than half a million homicides (U.S. Bureau of
Justice Statistics, 2005). Thus, death sentences have not often been handed down in
homicide cases, and even when handed down they are not strongly enforced. According
to one study (Levitt, 2004), the probability that a convicted murderer will be executed
is approximately 1 in 200.
We must be cautious in arguing against the deterrent effect of the death penalty just
because it is a difficult effect to verify empirically. The shortcoming of the death penalty
may be due not to the death penalty in and of itself, but instead to the way in which it is
implemented in the real world. Perhaps a more certain and quicker implementation of the
death penalty would yield a verifiable deterrent effect. In fact, there is some evidence to
support this claim. One study (Shepherd, 2004) finds that, on average, one extra murder is
deterred for every 2.75-year reduction in a convict’s wait on death row before execution
takes place. Another study (Shepherd, 2005) finds that, on average, if a state carries out nine
executions or more, these are enough executions to create a deterrent effect. With fewer
than nine executions, no deterrent effect is found. While the robustness of these results can
always be in question, the ultimate point being made is sound—change the way the death
penalty is implemented, and its potential deterrent effect may be more apparent.
Due to the rare occurrence of executions for convicted murderers, some studies
attempt to find unique ways to measure the deterrent effect of the death penalty in spite
of the thinness of the data. One such study (Hjalmarsson, 2009) takes an extreme
localized view of the potential deterrent effect of capital punishment by looking at daily
homicide rates for city-level data. This use of highly disaggregated temporal and geo-
graphical data avoids the problem of using aggregate data that may not pick up a
relationship between execution and homicide rates. For example, it is possible for an
execution to deter murder in the very short run or in a specific city, but this relationship
is lost when execution and homicide rate data are compiled annually and statewide.
The study examines execution and homicide rates in three Texas cities—Dallas,
Houston, and San Antonio. The reason for focusing on cities in Texas is that the
execution rate in that state exceeds national execution rates. Compared to the national
average (at the time of the study), in Texas there are nearly twice as many death sen-
tences handed down per 1,000 homicides. Furthermore, seven times as many death row
inmates are executed each year in Texas compared to the national average. Thus, the
Texas data are typically considered as good as it gets when examining a disaggregated
view of the potential deterrent effect of capital punishment.
The study argues that for the death penalty to have a deterrent effect on crime,
potential murderers must have some idea of the likelihood of being executed. It is not
necessary for the criminal to have perfect knowledge, only that his perceived likelihood
of being executed can be influenced by certain events. For example, being exposed
through media coverage to a death sentence actually being carried out may have an
immediate impact on the criminal’s frame of mind in terms of deterrence. Determining
the strength of this impact is difficult to do, but the study’s main hypotheses are that
this impact should be largest in the days immediately surrounding an execution, should
be larger the greater the media coverage, and should have a more pronounced local
effect.
During the study’s sample period 1999 to 2004, there were a total of 172 executions in
Texas. The major daily newspaper in each of the three cities of interest provided coverage
of some of the executions. The Dallas Morning News covered 65 percent of the total
number of executions, and 83 percent of those for offenders sentenced in, or native to,
Dallas. The Houston Chronicle covered 35 percent of the total, and 76 percent of the local
number of executions. And, the San Antonio Express covered 30 percent of the total, and
100 percent of the local number of executions. Thus, each of these three newspapers
consistently provided greater coverage of executions with a local, as opposed to a state-
wide, component.
Using a seven-day window—three days before an execution, the day of, and three
days after—the study examines the deterrent effect of executions on the daily local
homicide rate in a given city. Among its several results, the main conclusion of the
study is that the local homicide rates in Dallas, Houston, and San Antonio are not
affected by Texas statewide executions or local executions. Furthermore, local media
coverage of executions is also found not to impact the homicide rates. In short, none of
the study’s main hypotheses concerning the existence of the deterrent effect of the death
penalty are supported by the available data.
Using a completely different approach, another study (Frakes and Harding, 2009)
does find evidence of a deterrent effect of capital punishment. Typically, many studies
that attempt to measure the impact of the death penalty on the homicide rate do so by
comparing states that use capital punishment to those that don’t. This study, on the
other hand, considers how eligibility requirements for capital cases change within a
state, and how this change may affect the homicide rate. The specific eligibility-
requirement expansion the study is most interested in concerns the murder of children.
At first blush, it may seem that in a state with capital punishment, child murderers
are likely candidates for capital eligibility. While it is the case that eligibility
requirements do exist that allow for child murderers to face execution, these require-
ments are not specifically targeting such murders:
From the beginning of the post-moratorium period… certain factors appeared

rather consistently (across states)… including: (i) murders of police officers or
public officials; (ii) murders committed by those with previous felony convictions;
(iii) murders by those who knowingly create a great risk of death to more than one
person by means of a destructive device; (iv) felony murders (usually robberies,
rapes, burglaries and arsons); (v) murders committed for pecuniary gain; and (vi)
murders committed to avoid arrest. Various other factors were found across some
initial death penalty statutes, including murders committed while under incarcera-
tion, murders of witnesses in legal proceedings, and murders involving especially
heinous or atrocious behavior (e.g., torture).
(Frakes and Harding, 2009, p. 460)
In the years following these initial statutes, several states expanded the eligibility
requirements to include other factors. The most common expansion (found in 16 states)
involved death penalty eligibility for child murderers. And during the study’s sample
period 1977 to 2004, 5 percent of the total number of homicides were committed against
victims under the age of 15, allowing for a reasonable amount of available data in which
to test for the deterrent effect of eligibility expansion on the child homicide rate.
The main result of the study is that child murder eligibility expansion is associated
with a 20 percent reduction in child murders, or roughly four fewer child murders (on
average) per state. The study argues that this deterrent effect stems from two distinct
avenues. First, to the extent that the child murder eligibility expansion leads to more
death sentences and especially executions, we have the traditional life-life trade-off that
most studies attempt to measure. This avenue, however, is thought to have minimal
impact on the child homicide rate. The second avenue is argued to be of far more
importance: the greater eligibility of the death penalty in child murder cases gives the
prosecutors substantial leverage in forcing harsher sentences on offenders through plea-
bargain negotiations.
The idea that the death penalty strengthens the plea-bargaining position of prosecu-
tors was previously explored in another study (Kuziemko, 2006). In 1995, New York
State reinstated capital punishment. While many prosecutors welcomed the return,
others publicly refused to seek the death penalty in their capital-eligible cases. This
difference in prosecutorial behavior allows the study to examine the effect of the death
penalty on plea bargains across two prosecutorial regimes. One result the study finds is
that for a given crime the defendant is charged with, the threat of the prosecution’s
willingness to seek the death penalty leads not only to harsher sentences, but also to
more guilty pleas. These harsher prison sentences, short of, but attributed to, the death
penalty, enhance the deterrent effect by increasing the expected punishment potential
murderers face.
While the bulk of empirical studies that attempt to verify the deterrent effect of the
death penalty use American data, there are a handful of interesting studies that use
international data. One such study (O’Sullivan, 2018) looks at the possible deterrent
effect of the death penalty using Australian data. Although capital punishment has
been abolished in Australia, the date of last execution and formal abolition varies from
state to state. For example, in Queensland the last execution took place in 1913, with
formal abolition occurring in 1922. In Western Australia, the last execution took place
in 1964, with formal abolition occurring in 1984. This variation in abolition rates can
be coupled with variation in homicide rates (while controlling for other demographic
and criminal justice variables) to determine if the deterrent effect can be empirically
verified.
The study presents evidence that illustrates the difference in how the death penalty is
implemented in Australia relative to the U.S. In the U.S. (after the moratorium was
lifted in the 1970s), there has been roughly one execution per 500 homicides. In Aus-
tralia, the comparable rate was one execution per 100 homicides. Furthermore, while
the average wait on death row prior to execution is roughly 11 years in the U.S., in
Australia executions routinely occurred during the same calendar year in which the
crime took place, or no later than during the next year. As discussed above (see Shep-
herd, 2004 and 2005), if a lack of evidence of a deterrent effect of the death penalty can
be attributed to implementation issues, the Australian data somewhat mitigate this
concern. Perhaps partly because of these factors, the study does find evidence that the
death penalty has a deterrent effect on homicides in Australia during the historically
relevant periods.
While the study does find evidence of a deterrent effect, the magnitude of the deterrent
effect found with the Australian data appears to be “small” when compared to the effect
found with the U.S. data (of course, this comparison ignores the U.S. studies that do not
find any deterrent effect). The study offers an interesting (and slightly gruesome) per-
spective as to why the Australian deterrent effect may be smaller than the American one:
Why is the estimated deterrent effect smaller for Australia than for the USA? Per-
haps the deterrent is greater in the USA because the possibility of a painful and
slow death by lethal injection has a greater deterrent effect than the possibility of
an instantaneous death by hanging in Australia. In the US, lethal injection is the
most common method of execution, and it can take the prisoner a long time to die.
On the other hand, hanging, the method used in Australia, was instantaneous.
Australia used the long drop method of hanging whereby the prisoner would die
when they fell from the gallows by having their spinal cord suddenly severed.
(p. 17)
The idea that the method of execution may impact the deterrent effect of capital punish-
ment fits well into the economic approach to crime and punishment, and has previously
been addressed in a slightly different context in an earlier study (Ekelund, Jackson,
Ressler, and Tollison, 2006). This study examines the effect of capital punishment on
criminals who commit multiple murders, and finds that while a deterrent effect exists for a
first murder, it does not exist for successive murders. The reasoning here is that if a crim-
inal faces the death penalty for a first murder, additional murders cannot increase the
severity of punishment. The policy consideration, then, is that successive murders may be
deterred if there is some gradation in the severity of punishment associated with each
additional murder.
For example, perhaps the first murder can be punished with lethal injection, but a
second murder can be punished with the electric chair (which is considered to be a
much harsher method of execution). Both murders lead to the criminal being sentenced
to death, but the gradation in punishment for the second murder may give the criminal
something to think about before committing the second crime. There can even be a
mixture of sanctions that can be imposed, such as sentencing a murderer to prison time
and then execution, and allowing for different severities of prison time (such as “hard”
time versus “soft” time) and different methods of execution. Of course, the authorities
may be able to deter multiple murders without offering a gradation in the severity of
punishment if they instead manipulate the certainty of punishment. As the Old West
bank robbers (from Chapter 1) had to consider, if serial killers face higher probabilities
of apprehension and conviction than do single murderers, both types can face the same
severity of punishment yet different expected punishments.
One other study (Zimring, Fagan, and Johnson, 2010) uses international data to
compare the use of the death penalty and homicide rates across two cities—Singapore
and Hong Kong—that are similar in many demographic respects, but very different in
terms of their use of capital punishment. Beginning in the early 1990s, Singapore had
one of the highest execution rates in the world. To get a feel for how often executions
took place in Singapore, the study compares its execution rate to that of the similar-
sized American metropolitan area that includes the city of Houston, Texas, which has
one of the highest execution rates in the U.S. From 1976 (when the moratorium on
capital punishment was lifted) to 2004, there were a total of 73 executions in Houston.
In 1994 alone, there were 76 executions in Singapore, followed by 73 in 1995, 50 in
1996, and 201 total from 1997 to 2007 (however, the execution rate dramatically
declined in the mid-2000s). Furthermore, as with the Australian data, it is a relatively
short wait from conviction to execution. The typical execution in Singapore takes place
within 18 months of conviction. Thus, for the purposes of empirically examining the
deterrent effect of capital punishment, the Singapore data are possibly the best avail-
able anywhere.
Hong Kong, on the other hand, formally abolished capital punishment in 1993, and
there has been no execution there since 1967. This vast difference in execution policies
between Hong Kong and Singapore allows the study to compare homicide rates across
two similar cities with very different policy regimes to determine if the death penalty
does have an impact on the homicide rate. The study offers a stark conclusion:
Homicide levels and trends are remarkably similar in these two cities over the 35
years after 1973, with neither the surge in Singapore executions nor the more
recent steep drop producing any differential impact. Singapore’s aggressive capital
punishment policies provided a critical test of the exuberant claims among U.S.
empiricists produced by statistical extrapolation over time in a low-execution
environment like the United States. The Singapore experience magnifies the impact
of U.S. assertions to a patently silly status.
(Zimring, Fagan, and Johnson, 2010, p. 27, emphasis added)
So, does this concluding comment, especially the last sentence, suggest that the answer
is no to the question that leads off this section: does the death penalty deter murder?
It is difficult to conclude that the death penalty definitely does not lead to a deterrent
effect on murder due to the fact that there are empirical studies that find such an effect.
On the other hand, as previously discussed, these studies have come under serious
scrutiny, and there is a substantial body of evidence that does not find a deterrent
effect. The studies that do not find a deterrent effect, however, typically suffer from
similar data and methodological limitations that are found in the studies that do find a
deterrent effect. And even with the Singapore data, regardless of how strong that data
are, the results of the study cannot be interpreted as proof that a deterrent effect does
not exist. The word “proof” simply does not apply in these empirical settings.
So why do economists continue to devote so much attention to the empirical ver-
ification of the deterrent effect of capital punishment? A deterrent effect, if it exists, can
be an important benefit associated with the death penalty. From an economic stand-
point, it is also an effect that is quantifiable, albeit imperfectly so. Economists are well
trained, and extremely comfortable, in attempting to quantify this type of benefit, and
there will always be new methodological approaches that scholars will believe are
worth pursuing. And while there are other potential benefits to capital punishment,
these benefits generally don’t lend themselves well to economic analysis.
For example, two often stated benefits of the death penalty involve the concepts of
justice and revenge. Some may argue that, to satisfy a sense of justice, the taking of a
life demands the taking of a life in return. That is, make the punishment fit the crime.
As for revenge, a victim’s family and friends may not be satisfied until retribution is
taken. Both of these arguments have social welfare merit in that some individuals can
reap benefits when capital punishment is imposed on convicted murderers. These ben-
efits, however, are usually extremely difficult, if not impossible, to quantify.
In all, it is likely that the conclusion of one study quoted above (Donohue and
Wolfers, 2005) best represents the current state of evidence on the deterrent effect of the
death penalty: “As to whether executions raise or lower the homicide rate, we remain
profoundly uncertain.” Still, even if no deterrent effect is found, capital punishment can
easily be justified by considering its other potential benefits. On the other hand, even if
a deterrent effect is found, justifying the death penalty from a cost-benefit perspective
still requires a consideration of its costs, of which there are several. We now turn to a
discussion of some of the social costs of capital punishment.
Wrongful conviction/execution
No matter on which side of the death penalty debate you find yourself, there is no
denying the fact that an innocent defendant being wrongfully executed is abhorrent. In
fact, many believe that the strongest argument presented in favor of abolishing capital
punishment is that if the death penalty is not used, a wrongful execution can never
occur. While that statement is obviously true, it circumvents the broader economic
concern of weighing the costs and benefits of capital punishment. But, for the time
being, let’s ignore any other costs and benefits of capital punishment and focus on
wrongful conviction/execution. While there is not much economic research concerning
wrongful conviction/execution, there are several important issues that economic rea-
soning can address.
While the death penalty is typically considered the harshest sanction in the American
criminal justice system, its availability may lead to a reduction in the wrongful convic-
tion rate. If jurors must find a defendant guilty beyond a reasonable doubt, the evidence
must be perceived by each juror to be beyond that threshold. It is possible that the
reasonable doubt threshold is itself dependent on the degree of punishment. For
example, in a death penalty case, a juror may hold the prosecution to a higher degree
of evidence to prove reasonable doubt than would be the case if the ultimate punish-
ment was life imprisonment. If sanctions are perceived to be too harsh for a particular
crime, a jury may be more demanding before they vote to convict. Thus, the death
penalty may reduce the probability of conviction, which means there will be fewer
wrongful convictions. Note, however, with fewer convictions there will also be fewer
correct convictions (that is, more wrongful acquittals).
This leads to an interesting question about how to design social policy to reduce
wrongful convictions without also increasing wrongful acquittals. In general, to reduce
the number of wrongful convictions, you must reduce the number of convictions, both
wrongful and correct. If the rules of evidence are changed in the defendant’s favor, or if
the reasonable doubt standard is somehow strengthened, you will protect both innocent
and guilty defendants. What is needed to reduce wrongful convictions yet not increase
wrongful acquittals is some method that improves the accuracy of verdicts, as opposed
to simply reducing the conviction rate. For example, while DNA evidence is often used
to exonerate wrongfully accused or convicted defendants, it is also used to prove the
guilt of correctly accused ones. While in practice DNA testing may not be perfectly
accurate or it may be poorly understood by juries, at least in theory it has the potential
to improve the accuracy of verdicts.
Wrongful conviction/execution is undoubtedly a serious cost of using the death penalty,
but can we say anything about the magnitude of this cost? Obviously, it is unlikely to know
with certainty whether a convicted defendant is truly innocent, but there is one piece of
evidence that may help account for the number of wrongful convictions—the exoneration
rate of death row inmates. One (noneconomic) study (Gross, O’Brien, Hu, and Kennedy,
2014) attempts to measure the rate of wrongful conviction in death penalty cases by looking
at how many death row inmates were exonerated during their sample period 1973–2004.
Inmates on death row draw a lot of attention from the legal system through appeals, as well
as from many anti-death penalty groups. This attention can mitigate the wrongful convic-
tion rate, at least in terms of post-conviction exonerations. In their sample, of the 7,482
defendants sentenced to death, 1.4 percent (107 inmates) were exonerated while awaiting
execution. But 1.4 percent may not be a reasonable estimate of the wrongful conviction
rate.
The study also takes note that a large number of defendants, 35.8 percent (2,675
inmates), sentenced to death eventually have their sentence commuted, but are not
exonerated. Part of the reason they are not exonerated is precisely because they no
longer remain on death row and, as a result, do not have their cases scrutinized with
the same level of intensity as those inmates that do remain on death row. So, the study
considers a counterfactual question: what would the exoneration rate be if all defen-
dants sentenced to death remained on death row without their sentence being com-
muted? And to this question, the study finds the answer to (conservatively) be 4.1
percent. That is, at least 1 in 25 defendants sentenced to death are done so wrongfully.
This result was given a fair amount of media attention, and while no one can doubt
the seriousness of wrongful convictions in capital cases, a few additional points can be
made. It is important to note that a wrongful conviction is not the same thing as a
wrongful execution. A wrongful conviction can occur in any trial, capital or not, yet a
wrongful execution can only occur in a capital case. The study briefly addresses this
concern: “How many innocent defendants have been put to death? We cannot estimate
that number directly but we believe it is comparatively low” (Gross, O’Brien, Hu, and
Kennedy, 2014, p. 7235). Still, from a social welfare perspective, any number of
wrongful executions, large or small, can be considered as a substantial component of
the social cost of using the death penalty.
If wrongful conviction is truly the problem at hand, it is important to recognize that
the death penalty may be mitigating that effect, not aggravating it. As mentioned
above, in capital cases the probability of conviction may be lower and the post-convic-
tion exoneration rate may be higher, compared to some other sanction such as life
imprisonment. It is possible that without the death penalty, more resources would be
devoted to scrutinizing the cases of defendants sentenced to life imprisonment, thus
enhancing their exoneration rate. But, for now, it is not clear if the availability of the
death penalty as a sanction in murder cases increases or reduces wrongful conviction
costs.
Death penalty administrative costs

Capital cases are typically far more complicated to litigate than are noncapital cases. A
number of studies have examined the costs of trying death penalty cases. One study
(Roman, Chalfin, and Knight, 2009) presents a concise survey of the results of these
studies:
Fourteen studies have estimated the costs of capital punishment, including one
study of the federal death penalty and 13 state- or county-level studies. Each study
concludes that the presence of capital punishment results in additional costs.
However, there is substantial variation in the cost estimates. Among the five studies
that compare the cost of a death sentence with the cost of a capital-eligible case in
which no death notice is filed, the average (additional) cost per case is $650,000,
but the estimates range from about $100,000 to more than $1.7 million.
(p. 533)
The authors’ own estimate, using 457 capital-eligible cases in Maryland between the
years 1978 and 1999, is $1 million over the duration of the case.
One study (Cook, 2009) looks at the administrative costs of death penalty cases in
North Carolina over the two-year period 2005 and 2006. During this period, a total of
1,034 defendants were arraigned for murder in North Carolina, with 29 of them facing
capital charges and 11 of them sentenced to death. Furthermore, early in the proceed-
ings of 274 cases, it was announced by the district attorney that the death penalty
would be sought. Even when these particular cases are not ultimately tried as capital
cases, the intention of seeking the death penalty has a bearing on the administrative
costs of trying these cases.
The goal of the study is to compare the costs incurred by the state in pursuing
capital cases, with the likely costs that would have been incurred in the absence of the
death penalty. Here is a succinct breakdown of the cost savings that would have
occurred had the death penalty been repealed: extra defense costs for capital cases in
trial phase ($13,180,385); extra payment to jurors ($224,640); capital post-conviction
costs ($7,473,556); resentencing hearings ($594,216); and prison system ($169,617).
These figures total $21,642,414 over the two-year period, for a yearly average saving of
nearly $11 million. In addition to the monetary savings, abolishing the death penalty
would free up a tremendous amount of resources (such as the equivalent of nine assis-
tant prosecutors each year and 345 days of trial court time) that could be put to use for
other criminal justice activities. The study concludes that these savings are certainly not
trivial.
The author is careful to point out that in no way do these results represent a com-
prehensive social welfare analysis of the death penalty. While it is true that the
substantial administrative cost savings represent a benefit of abolishing the death pen-
alty, there are other factors that need to be considered. Abolishing the death penalty
could reduce the deterrent effect on murder (if the effect exists) by reducing the severity
of punishment. On the other hand, if the freed-up resources are used to enhance the
conviction rates of noncapital murder cases, this could increase the deterrent effect by
increasing the certainty of punishment. Also, abolishing the death penalty may
remove an important strategic tool that prosecutors use to pressure defendants into
plea bargains, thus saving trial costs. And, as discussed above, there are other costs
and benefits of the death penalty that come into play in any thorough social welfare
analysis. The modest goal of this study, and others, is to paint a clearer picture of
one important component of the application of the death penalty—its adminis-
trative costs.
Death penalty and race

One common argument that is used against capital punishment is that it is applied in
a discriminatory fashion against minority defendants. In fact, the Supreme Court’s
rationale for imposing a temporary moratorium on the death penalty in the early
1970s was due, in part, to the belief that capital punishment was imposed capriciously
in terms of race. There are numerous economic studies, involving several different
approaches, that attempt to determine if the death penalty is applied with racial bias.
As is always the case with empirical analysis of controversial social issues, conflicting
results are found. That is, while there is much evidence supporting the hypothesis that
the death penalty is applied with racial bias, some studies have found that minority
defendants may be favored by the criminal justice system.
For example, one study (Argys and Mocan, 2004) examines the fate of prisoners who
have already been sentenced to death and are awaiting execution on death row. The
study is concerned with the factors that affect how these prisoners transition from year
to year. There are several possible transitions death row inmates can face: they can be
executed; they can die of other causes; they can have their sentence commuted to a
lesser sentence; they can have their conviction or sentence overturned; or, they can
simply remain on death row and await execution. Using a data set that includes the
entire population of inmates on death row between 1977 and 1997, one key result
emerges with respect to race: Blacks face a lower transition rate to execution than do
Whites.
While the results of this study can be interpreted as suggesting that Blacks are
favored when considering death row transitions, the study offers a potential explanation
for these results that still accounts for racial bias:
This (result) may indicate pure preferential treatment of blacks and other mino-
rities, or it may be an indication of reversal of discrimination that may have taken
place earlier in the process. Minorities on death row would have weaker cases
against them if they were subject to discrimination in earlier stages. In this case,
their probability of execution would be lower than that of their white counterparts,
and favorable treatment on death row may be to rectify irregularities that may have
taken place at arrest, trial, conviction, or sentencing phases.
(Argys and Mocan, 2004, p. 280)
The study also finds that, in terms of gender bias, women face higher commutation and
sentence/conviction overturn rates compared to men. In short, death row transitions
are found to be based on factors related to race and gender.
Another avenue for racial bias in the application of the death penalty is not explicitly
based on the race of the defendant, but instead based on the race of the victim. One
study (Blume, Eisenberg, and Wells, 2004) examines the relationship between defendant
and victim in death penalty cases. Looking at 31 states with more than ten death row
inmates between the years 1977 and 1999, the study notes that only three of these states
(California, Nevada, and Utah) have a proportion of Black death row inmates that
exceeds the proportion of Black offenders. The opposite is true in all other states. For
example, in Alabama, 52.7 percent of the death row population is Black, yet 69.1 per-
cent of the offenders are Black. With aggregate data, Blacks account for 51.5 percent
of all murders, but only 41.3 percent of death row inmates. Thus, it appears that Blacks
are underrepresented on death row. Are Blacks receiving favorable treatment compared
to Whites in capital cases?
The study identifies two sources creating a misrepresentation of Blacks on death row.
The first source leads to an overrepresentation—Blacks are overrepresented on death
row in White victim cases. The second source leads to an underrepresentation—Blacks
are underrepresented on death row in Black victim cases. For example, in the state of
Georgia (a reasonably representative state in the study) between 1977 and 2000, there
were 7,091 murders involving same-race Black offender and victim, and 0.45 percent of
the offenders were sentenced to death. There were 2,734 murders involving same-race
White offender and victim, and 4.17 percent of the offenders were sentenced to death.
There were 726 murders involving Black offender and White victim, and 9.92 percent
of the offenders were sentenced to death. Finally, there were 1,878 murders involving
White offender and Black victim, and 2.14 percent of the offenders were sentenced to
death.
In ranking all four offender/victim combinations and the proportion of offenders
sentenced to death, Black murdering White is the highest, followed by White murder-
ing White, White murdering Black, and Black murdering Black. This suggests that the
race of the victim is an important factor affecting the probability of being sentenced to
death. Black offenders are underrepresented on death row because only 0.45 percent of
their same-race murders have the offender being sentenced to death. On the other
hand, Black offenders are overrepresented on death row because 9.92 percent of their
different race murders have the offender sentenced to death. But when the two effects
are combined, the first dominates the second because there are far more Black intra-
racial murders (7,091) than there are Black interracial murders (726). The study con-
cludes that Blacks are underrepresented on death row because intraracial murders are
far more common than interracial murders, and there is a reluctance to impose the
death penalty on Blacks who murder Blacks.
Along similar lines, one study (Alesina and La Ferrara, 2014) uses defendant/victim
race combinations to determine if judicial racial bias is present in applying the death
penalty. The idea here is that if the first trial court is truly unbiased, any errors that are
made in convicting defendants should be consistent across defendant/victim pairings:
For example, if courts commit more errors on minority defendants who killed
white victims than on those who killed nonwhite victims, they should also commit
more errors on white defendants who killed white victims than those who killed
nonwhite ones. In other words, for each defendant’s race the ranking of error rates
across victims’ race must be the same. Failure to satisfy this condition implies the
presence of racial bias in our model.
(p. 3398)
To determine if the first trial court makes an error, the study examines the appeals
process to observe if a higher appeals court (either at the state level or federal level)
reverses the first court’s ruling. A reversal suggests that an error was made at the lower
court level.
While testing for lower court bias is most clearly done under the assumption that the
appeals courts themselves are unbiased (so that reversals do not reflect the higher court
undoing unbiased decisions of the lower court), the study is able to account for how
potential biases at the appeals court level affect the results. This sophisticated study is
also able to account for several other confounding factors, for example bias possibly
attributed to other agents of the criminal justice system such as the police or the prose-
cutors. The main result of the study is that the first trial court tends to give more death
sentences that are later reversed to a minority defendant killing a White victim than it
does to a minority defendant killing a minority victim. Thus, this study finds racial bias
against minority defendants at the first trial court level. Furthermore, this result is
attributed solely to Southern states (defined by the census to include 16 states and
Washington, D.C.).
With any trial by jury, racial bias may be attributed to a judge and/or jurors. One
study (Iyengar, 2008) attempts to distinguish between racial bias on the part of judges
versus juries in applying the death sentence in capital cases. In 2002, the U.S. Supreme
Court ruled in Ring v Arizona that juries, as opposed to judges, were to determine the
sentencing in capital cases. Prior to this decision, in some states a single judge, or a
panel of judges, were entrusted with sentencing responsibility. For example, in Ring,
while the jury found the defendant guilty of felony murder (a driver was killed during
an armored car robbery), the death penalty could not be applied because they were
deadlocked on the charge of premeditated murder. Under Arizona law, however, the
trial judge was given the opportunity to hold a separate hearing to consider aggravat-
ing and mitigating circumstances in deciding to apply the death penalty. The judge
found two aggravating factors (the crime was committed for pecuniary gain, and it was
committed in a depraved manner) and one mitigating factor (the defendant had a
minimal criminal history) and sentenced Ring to death.
Using a large data set of homicides from 1977 to 2007 that includes over 8,000 death
penalty cases, the study compares sentencing behavior pre- and post-Ring. The main
result is that not only are juries more likely than judges to apply the death penalty,
juries are more influenced by such demographic factors as the race and age of the
defendants and the victims. Especially notable (in line with the previous study), juries
are more likely to apply the death sentence against minority defendants who are con-
victed of murdering Whites. Judges, on the other hand, tend to be more influenced by
factors such as the choice of weapon and the circumstances of the murder. The study
offers the following conclusion:
The Ring v. Arizona decision is in part based on the notion that due process
requires that all interpretation of fact be conducted in jury deliberation rather than
through determinations by a single judge or panel of judges. Underlying this is the
concept that jury decisions are fairer in the sense that they are based on percep-
tions by peers of the offenders as opposed to perceptions of government employees,
such as judges. However, the results of this study suggest that although juries may
be required as a result of the due process sense of fairness, they appear to make
decisions in a more prejudiced and biased manner than do judges.
(Iyengar, 2008, p. 716)
This result leads to an interesting follow-up question: is it individual jurors or juries as

a whole that are biased?
One study (Eisenberg, Garvey, and Wells, 2001) attempts to determine how indivi-
dual juror bias may contribute to a full jury’s decision to impose the death penalty on a
convicted criminal. There may be many factors that affect an individual juror’s decision
to vote for death. The study is most interested in examining three personal juror char-
acteristics—race, religion, and attitude toward the death penalty—and how these
attributes impact voting behavior. But to do this, (at least) two complicating factors
must be addressed. First, the study cites a substantial body of research that emphasizes
that whatever personal biases jurors may have, it is the facts of the case that are of
most importance when deciding to vote for the death penalty, and so these facts are a
confounding factor that must be controlled for when trying to attribute voting behavior
to personal juror characteristics. Second, to apply the death penalty, the jury’s verdict
must be unanimous. Thus, if all jurors end up voting the same way, it can be difficult to
distinguish their voting behavior based on differences in their personal characteristics.
The study neatly addresses both of these problems. Using juror survey data from 53
capital cases in South Carolina between 1986 and 1997, the study has information on how
jurors perceived the facts of the cases in which they were involved. Each juror was asked to
evaluate three particular case facts: how serious was the crime (that is, the different degrees
of brutality associated with the murder); how remorseful was the defendant; and, what is
the defendant’s expected future dangerousness (which is largely a function of the first two
case facts). Now being able to control for these case facts, the study has to find a way to
determine if personal juror characteristics affect voting behavior.
While it is true that a unanimous vote is required to apply the death penalty, the jury
can take several votes before a final unanimous vote is reached. The study focuses on
the first of these votes, believing that if personal biases are to come into play, they are
most likely to be revealed in a first vote before further deliberation takes place to
overcome any disagreements that may exist. In terms of first-vote behavior, the study
finds that White jurors, Southern Baptist jurors, and (not surprisingly) jurors who sup-
port the death penalty in general are more likely to vote for the death penalty com-
pared to their respective counterparts. But if these differences wash out by the final
unanimous vote, what can be said about juror bias affecting the outcome of the deci-
sion to apply the death penalty? There is still one more piece to this puzzle.
With the study’s data set, when the first vote is not unanimous but the final vote is (as
opposed to the jury being deadlocked), the final vote almost always matches the initial
vote. In other words, the majority outcome of the first vote is a strong predictor of the
unanimous outcome of the final vote. And with these cases from South Carolina (and
typically in most U.S. jurisdictions), Blacks very rarely make up a majority of jurors.
Therefore, if Whites are more likely to vote for the death penalty compared to Blacks,
and majority rule dictates the final vote, the study concludes that majority rule may be
equivalent to White rule. To alleviate this source of racial bias, the study offers no easy
solution other than this blanket statement with its concluding words: “We believe the law
should do more to enforce and guarantee that the jurors qualified to deliver sentences of
life or death are impartial ones” (Eisenberg, Garvey, and Wells, 2001, p. 310).
For one last example, in addition to judges and juries, racial bias in the imple-
mentation of the death penalty may be politically motivated. One study (Kubik and
Moran, 2003) examines the effect of gubernatorial elections on the execution rate. The
question addressed by this study is: do “tough-on-crime” platforms during election
campaigns lead to more executions? An incumbent governor running for reelection has
the ability to affect current policy, as opposed to just promising to affect future policy.
The study finds that during a gubernatorial election year, states are 25 percent more
likely to carry out executions than during off-election years. Furthermore, this effect is
more pronounced on the probability of a Black defendant being executed compared to
a White defendant, and more pronounced in Southern states compared to other states.
In all, identifying and quantifying the costs of capital punishment is a complicated
and ambiguous undertaking. Add this fact to the “profound uncertainty” of whether
the death penalty deters murder, the most quantifiable benefit of the death penalty may
not be quantifiable after all. Yet while economists typically focus on the deterrent effect
as the key benefit of the death penalty, it’s existence or nonexistence does not bring the
debate to any easy resolution. No doubt, the role of capital punishment in the criminal
justice system is, and will remain, a controversial topic. Nevertheless, if it is deemed
that the death penalty has social costs that exceed its benefits, the policy solution to
deal with the problem can be quite trivial—ban the death penalty. And this is a policy
position that many countries and U.S. states pursue. No such easy policy solution exists
for the equally controversial topic of Chapter 6—racial bias throughout all levels of the
criminal justice system. The economic approach to racial bias typically starts with a
simple yet (to the layperson) startling question: does such bias even exist?
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6 Racial bias and the criminal justice system
There is often one fact that is first presented as evidence of racial bias in the criminal
justice system: while Blacks make up only 12 percent of the total population in the U.S.,
they make up approximately 40 percent of the country’s prison population. As striking
as this fact is, it simply is not informative as to whether the criminal justice system is
racially biased against Blacks. If that is a difficult statement to accept, consider another
striking fact: while men make up only 50 percent of the total population in the U.S., they
make up approximately 90 percent of the country’s prison population. Are men being
discriminated against by the criminal justice system? Or is there a simpler explanation,
such as men are far more likely to commit crimes than are women? In explaining the first
fact, then, is it simply that Blacks are far more likely to commit crimes than are Whites?
In more formal terms, are gender and race predictors of criminal behavior? If yes, then
we should expect the criminal justice system to treat men differently than women, and
Blacks differently than Whites. But that in itself does not rule out the possibility of bias
in the criminal justice system.
There are many stages in the criminal justice system, and the potential for bias exists
at each and every stage. Police officers may be biased at the arrest stage. Prosecutors
may be biased at the criminal charge and trial stages. Judges may be biased at the set-
ting of bail and trial stages. Jurors may be biased at the trial stage. Parole board
members may be biased at parole determination hearings. All of these biases may work
in the same direction, or in different directions. For example, perhaps a prosecutor acts
in a way to reverse racial bias at the arrest stage. Or maybe a prosecutor compounds
the problem by adding another layer of racial bias against a Black defendant.
The fact that different groups are treated differently by the system tells us little about
the existence of bias. If one group, on average, is more likely to commit crime, or has a
deeper criminal history, or commits harsher crimes than another group, an efficient
criminal justice system necessarily will treat these groups differently. In short, it is no
small task to identify bias in the criminal justice system. There are numerous con-
founding factors that account for differences in how defendants are treated at every
stage of the system. To truly identify bias, then, great care must be taken in designing
appropriate empirical studies. Economists have devoted a substantial amount of
research in examining potential bias at every level of the criminal justice system. As
usual, mixed results are found. But regardless of what results are found, the important
aspect of every study reviewed in this chapter is that an attempt is made to carefully
distinguish bias, be it racial or gender, from other factors that may explain differences
in how various groups are treated.
Racial bias and the criminal justice system 69
Racial profiling
Consider a simple searching-for-contraband model in which the police perform traffic
stops and distinguish between only two groups of people—Black men and White men.
The police position themselves in such a way that they can clearly determine whether it
is a Black or White man driving the car before they decide to stop it. Assume, for the
time being, that the only objective the police pursue in performing these traffic stops is
to maximize the probability that they will find contraband when they stop and search a
car. In other words, by assumption, in this model of police search the police are com-
pletely unbiased—no police officer has any bias in favor of, or against, either race. All
the police want to do is to use their resources efficiently to deter crime. How should
they achieve this goal?
A key part of this story is to have some idea as to what is the likelihood that each
group will be carrying contraband. Let’s say that Black men have a higher likelihood of
carrying contraband than do White men. For example, assume that 25 percent of Black
men, but only 15 percent of White men, carry contraband in their cars. When the
police search different groups at different rates, they are often criticized as being biased
in their search procedures. So let’s start off by having the police search each group
equally. The police decide to stop and search one in every ten cars, meaning that each
group faces a 10 percent search rate. While this may be an equitable way to search
across the two groups, is it efficient? It is not, as the police can increase their prob-
ability of finding contraband by increasing the search rate for Black men.
Consider the very next (or marginal) search. If the police stop and search a Black
man, they will have a 25 percent chance of finding contraband (known as the hit rate).
If, instead, they stop and search a White man, they will only have a 15 percent chance
of finding contraband. If the goal is to maximize the probability of finding contraband
regardless of the race of the driver, it is efficient for the police to search a Black man
next. As long as Black men are more likely to be carrying contraband than White men,
the police should always search Black men. But this does not imply that the efficient
search procedure is to search one group only.
In a model of rational criminal behavior, the probability that a criminal will commit
a crime by carrying contraband depends on the likelihood that he or she will be stop-
ped and searched by the police. This implies that as the police increase their intensity of
search of Black men, the probability that Black men will be carrying contraband will
no longer be 25 percent, but will be less. Similarly, as the police reduce their intensity of
search for White men, the probability that White men will be carrying contraband will
no longer be 15 percent, but will be higher. As these probabilities of carrying contra-
band continue to change, eventually they will be equal. Assume this occurs when each
group has a 20 percent chance of carrying contraband. When this happens, the police
have a 20 percent chance of finding contraband with their next search whether they
stop and search a Black man or a White man. At this point, when the hit rates are
equalized across both groups, the police are using their search resources efficiently.
In this example, the police began with a 10 percent search rate for each group, and
then increased their search intensity of Black men while lowering their search inten-
sity of White men. To equate the hit rates, then, the search rates can no longer be
identical: Black men will be searched at a higher rate than White men. While the
economic model demonstrates that efficient police searching requires differential
search rates across groups, these differential search rates are often what lead to public
outcry against what appears to be policy discriminatory behavior, especially when the
groups are distinguished by race. But to interpret the results of this model as con-
doning police discrimination would be a gross misunderstanding. This model is
designed to identify police discrimination, not encourage it.
It is important to note that this example began with a specific assumption: Black
men are more likely to be carrying contraband than are White men. It is this assump-
tion that leads to the differential search rates, with Black men being searched more
intensely than White men. When different groups have different propensities to commit
crime, differential search rates may not be suggesting bias in police behavior. A dis-
tinction must be made between statistical discrimination and prejudicial discrimination:
Police may use race as a criterion in traffic stops because they are trying to max-
imize successful searches and race helps predict criminality or because they prefer
stopping one racial group over another. We call the first type of situation statistical
discrimination… An equilibrium exhibits statistical discrimination if police are not
racially prejudiced and yet one race is searched more often than another. In con-
trast, we say that officers are racially prejudiced if… they have a preference for
searching motorists of a particular race. Prejudice is a property of the officer’s uti-
lity function, whereas statistical discrimination is a property of equilibrium.
(Knowles, Persico, and Todd, 2001, p. 205)
So how does this model distinguish between statistical discrimination and prejudicial
discrimination? It examines the hit rates, as opposed to the search rates, across groups.
Recall that this example explicitly assumes that the police are unbiased. Thus, the
differential search rates between Black men and White men cannot be explained by
prejudicial discrimination. Black men are being searched more intensely than White
men only because they, at first, are more likely to be carrying contraband. In the end,
due to the efficient differential search rates, both groups are equally likely to be carry-
ing contraband. But what happens if the police discriminate against Black men because
they are biased against them? In this case, the Black men will face lower hit rates than
the White men.
If the police are biased against Black men, they may want to stop and search them
because they don’t like Black men and want to impose a cost upon them. As the police
intensify their search of Black men, it is predicted that they will have a lower pro-
pensity to carry contraband. That is, the police are searching Black men for reasons
that go beyond efficient statistical discrimination, and so Black men are being over-
searched. This will lead to a lower hit rate for Black men relative to White men.
Because of this, the model offers a simple test to identify the existence of police bias: if
prejudicial discrimination exists, different groups will have different hit rates and the
group with the lower hit rate is being discriminated against. Thus, the model is not
condoning racial discrimination, it is simply suggesting that the existence of prejudicial
discrimination cannot solely be inferred from differential search rates.
One thing that the model cannot account for is why one group has a higher pro-
pensity to commit crime than another group. Yet it is this important fact that leads to
efficient statistical discrimination and a higher search rate for the group that is more
criminally inclined. If the crime rate is higher for Black men than it is for White men,
why is this so? It may be that it is not race in and of itself that predicts criminal
behavior, but other characteristics that correlate with race, such as education, income,
employment, and so on. If these other factors are difficult to observe, race may be used
as an observable proxy. And while it may be extremely important to understand the
roots of racial differences in criminal behavior in terms of considering social reforms to
help reduce the crime rate, efficient searching necessarily requires the police to take into
account these differences regardless of why they exist.
The seminal economic study that develops the model of efficient search (Knowles,
Persico, and Todd, 2001) offers an empirical investigation of potential police bias in
performing traffic stops along Interstate 95 in Maryland. The study uses data on all
motor vehicle searches along that highway between January 1995 and January 1999.
The first striking fact the study presents is that while only 18 percent of the drivers are
Black in their sample, 63 percent of the drivers stopped and searched by Maryland
state troopers are Black (the corresponding search rate for Whites is 29 percent). An
observation like this one is typically used to suggest that the police are racially
biased—Blacks are disproportionately stopped and searched by the police. But the hit
rates tell a completely different story, as they are almost identical across the two groups
(34 percent for Blacks and 32 percent for Whites). Based on the hit rate results, then,
the study concludes that there is no evidence of police racial bias against Blacks in their
sample.
Another study (Sanga, 2009) extends the previous study by looking at a longer sample
period (1995 to 2006), and by including all police searches in Maryland, not just those
along Interstate 95. While the previous study includes approximately 1,600 police sear-
ches, this study’s larger data set includes 19,000 searches. This more comprehensive
sample yields a very different result—the hit rates are now 38 percent for Whites, 28
percent for Blacks, and 8 percent for Hispanics. The lower hit rates for Blacks and
(especially) for Hispanics suggest that the Maryland state troopers are searching these
groups too intensely relative to Whites, an indication that the police are racially biased.
There have been several other approaches to identifying racial bias among police
officers, especially in terms of traffic stops, that do not rely on comparing hit rates across
groups. One such approach considers whether search behavior varies across police offi-
cers of different races. If the police are unbiased and search different groups at different
rates due only to statistical discrimination, the race of the police office should have no
impact on search behavior. Using data from the Boston Police Department from 2001 to
2003, one study (Antonovics and Knight, 2009) finds that the race of the police officer
does impact search rates. When the race of the police officer differs from the race of the
motorist, there is a higher probability that the motorist will be searched. The study finds
this to be true not only for White officers searching Black motorists, but also for Black
officers searching White motorists.
One interesting study (Grogger and Ridgeway, 2006) puts forth what is termed a veil
of darkness hypothesis. If the police are racially biased in choosing who to stop and
search, this bias can only occur if the police can observe the race of the motorist. Thus,
the bias is more likely to be present during the daytime than during the nighttime, as
distinguishing the race of the motorist becomes difficult to do without sufficient light-
ing. If police behavior differs between daytime and nighttime, this may be an indication
of racial bias. Using data from Oakland, California, from June to December 2003, that
includes all traffic stops during that period (approximately 7,600 stops), the study does
not find evidence of prejudicial racial profiling as police search procedures do not differ
between daytime and nighttime.
On the other hand, a follow-up study (Horrace and Rohlin, 2016), while embracing
the veil-of-darkness hypothesis, refines it in a clever way. The key aspect of the
hypothesis is that the race of the driver is more difficult for the police to observe when
it is dark. The previous study used nighttime as their proxy for darkness, but the cur-
rent study argues that how dark it is at night depends on the presence of street lights. In
short, where street lights enhance the light, it may be very possible to observe the race
of the driver during nighttime. Using data that includes the location of street lights in
Syracuse, New York, for the years 2006–2009, the study finds that there is a difference
in police behavior between the nighttime (as defined by darkness not including ambient
street lighting) and the daytime, with Black drivers (compared to others) approximately
15 percent more likely to be stopped in the daytime relative to the nighttime.
Another study (Quintanar, 2017) presents a unique way to determine if the police are
biased against women or Blacks when issuing speeding tickets. The study uses data
from Lafayette, Louisiana, from October 2007 to February 2008, and compares tickets
issued by police officers versus tickets issued by automated cameras. While police offi-
cers can use their discretion in issuing tickets and consider several factors beyond the
speed of the driver, automatic cameras consider only the speed. Thus, if police officers
issue tickets based on gender or race in different proportions to those issued auto-
matically, this may be an indication of police bias. The study finds strong results that
police officers ticket women at a higher rate than do the automatic cameras, and
weaker results that the same holds for Blacks. While the study does not directly test for
the source of this difference, that is, statistical versus prejudicial discrimination, it does
conclude that police discretion along gender and racial lines is present.
A completely different approach to detecting police bias considers the degree of officer
discretion when making an arrest. A police officer typically has a large degree of discre-
tion when deciding on stopping and searching a suspect, but less discretion when con-
sidering making an arrest as some degree of evidentiary standard needs to be met to
warrant the arrest. Nevertheless, police officers do face different degrees of discretion
when making an arrest. When an officer makes an on-scene arrest, the officer’s discretion
strongly comes into play. But when an officer makes an arrest after a lengthy and careful
investigation, there is not likely to be much officer discretion involved. To the extent that
racial bias is present at the time of arrest, then, it is predicted that the more discretion a
police officer has in making an arrest, the more likely is racial bias to be present. Fur-
thermore, if it is bias that is leading to an arrest, as opposed to a sufficient level of evi-
dentiary standard, that arrest is more likely to be dismissed further along the chain of the
criminal justice system.
One study (Tomic and Hakes, 2008) attempts to identify police bias by taking
advantage of the fact that if biased police officers are excessively arresting minorities,
these arrests are likely to involve a high level of officer discretion. Using data from
nearly 58,000 felony cases in the U.S. between the years 1990 and 1998, the study finds
that for arrests that involve a high level of officer discretion, Blacks face a higher dis-
missal rate compared to Whites. But for arrests that do not involve a high level of
officer discretion, the dismissal rates for Blacks and Whites do not differ. These results
suggest that when officer discretion is a factor when making an arrest, racial bias
against Black suspects is present.
Another study (Heaton, 2010), attempts to address the issue of racial profiling by
asking a different question: what is the impact on crime rates when the police are dis-
couraged from using racial profiling? In April 1998, two White New Jersey state
troopers were involved in a controversial shooting incident in which four men—three
Black and one Hispanic—were shot at while in their van. Basically, it was a traffic stop
that turned dangerous when the troopers (in their opinion) felt threatened, even though
there were no weapons or drugs found on the men or in the van. This single incident
led to a swift response from the governor, and new procedures covering police behavior
were soon enacted. In short, the behavior of state troopers would now be heavily
monitored, and apparent incidents of racial profiling could lead to disciplinary action.
Furthermore, much media attention was given to these reforms, so the public was
made well aware of these new policies toward reducing racial profiling.
Looking specifically at the crime of motor vehicle theft, a crime that is often detected
through traffic stops, the study finds that the reforms led to a substantial reduction of
arrests of Blacks relative to Whites. The study also finds evidence supporting the
rational crime model in that the lower minority arrest rates led to higher rates of motor
vehicle thefts in minority areas. As the New Jersey incident led to substantial policy
changes that were enacted quickly, the study attributes the change in arrest and crime
rates largely to the change in police procedures concerning racial profiling. That is,
discouraging racial profiling led to an increase in the minority crime rate, specifically
motor vehicle thefts in this one case.
Judicial bias
Another avenue for examining racial (and gender) bias in the criminal justice system is
to consider how judges determine sentences across racial groups. One study (Glaeser
and Sacerdote, 2003) examines the role of victim race in affecting the punishment of
drivers convicted of vehicular homicide. As such crimes are typically caused by drivers
who are under the influence of alcohol or drugs, they have more in common with
accidents than they do with intentional acts of violence. This allows the study to con-
sider the victims of vehicular homicide to be largely determined at random, especially
when compared to victims of other violent crimes. The cleverness behind this study
stems from the fact that the more complicated is the relationship between criminal and
victim, the more factors exist that may affect punishment. With randomly selected
victims, on the other hand, the relationship between criminal and victim is far less
complicated, and differential punishments across defendants may be more confidently
attributed to the presence of bias.
The main result of the study in terms of racial bias is that drivers who kill Blacks
receive sentences that are approximately 60 percent shorter than the sentences received
by drivers who kill Whites. In terms of gender bias, drivers who kill women receive
sentences that are approximately 60 percent longer than those received by drivers who
kill men. In accounting for these biases, the study offers the following thought:
One proposed explanation… is that sentence lengths are driven, in part, by a taste
for vengeance. Since this taste may be operating at a subconscious level, it would
not be surprising if victim characteristics still motivate this taste, even when the
victim is random.
(Glaeser and Sacerdote, 2003, p. 365)
It should be noted that while this study finds judicial bias in sentencing based on victim
characteristics, it also finds that other factors have an impact on sentencing that fit well
into the rational crime model, such as a trade-off between the certainty of punishment
and the severity of punishment, and longer incapacitation for offenders most likely to
recidivate.
Instead of focusing on victim characteristics, several studies focus on defendant
characteristics in identifying judicial bias. One ambitious study (Mustard, 2001) com-
piles a huge data set consisting of 77,000 offenders sentenced under the Federal Sen-
tencing Guidelines of 1984. These guidelines were designed in an attempt to reduce
judicial discretion in sentencing, especially discretion relating to race and gender. The
guidelines allow for two main components in determining a sentence: the severity of
the defendant’s offense; and the defendant’s criminal history, including the number and
severity of past offenses, as well as prison time served. Each combination of offense
level and criminal history yields a specific sentence range.
For example, the offense of mishandling a toxic substance has a base level of eight
points. If there was an ongoing discharge of a toxic substance, six points are added to
the base score. If the offense created a substantial risk of death or injury, another nine
points are added, leading to a total offense level score of 23 points. The criminal his-
tory score ranges from a low of 1 to a high of 6. Let’s say this particular offender has a
criminal history score of 3. For this combination of offense level and criminal history,
the guidelines yield a sentence range of 57 to 71 months. Despite the specificity of these
sentence ranges, there are still two avenues in which judicial bias can impact senten-
cing. First, these are sentence ranges, meaning that judges have flexibility within the
range. Second, the guidelines are not mandatory—judges have the discretion to set
sentences that go outside of the range.
Using offenders sentenced between October 1991 and September 1994, the study has
data on 41 different crime categories, ranging from drug trafficking, fraud, murder, and
kidnapping, to counterfeiting, civil rights violations, and antitrust violations. For each
offender included in the data set, there is information on offense level, criminal history,
race, education, income, number of dependents, and citizenship (U.S. or not). At first
blush, the data show substantial racial and gender bias. For example, the average sen-
tence is 64.09 months for Blacks, but only 32.06 months for Whites. The gap is even
larger for men versus women. The average sentence length is 51.52 months for men,
and only 18.51 months for women. These types of statistics lead many critics to con-
demn the judicial system for being overly prejudicial, but a first blush look at the
numbers can be misleading.
Arguably, the two most important factors in explaining sentence length are a defen-
dant’s offense level and criminal history, precisely what the guidelines use to determine
sentence ranges. A closer look at the data reveals that the average offense level for
Blacks is 19.01, while the average offense level for Whites is 15.48. Furthermore, the
average criminal history score for Blacks is 2.37 while for Whites it is 1.81. The average
offense level for men is 18.30 and for women it is 13.11, while the criminal history
score is 2.10 for men and 1.37 for women. Do Blacks face higher average sentences
because they commit more serious crimes and have more involved criminal history
than do Whites? Does the same hold true for the average sentence for men compared
to women? If yes, different sentence lengths across race and gender may not be due to
judicial bias. This is what the study tries to sort out.
After controlling for defendants’ offense level and criminal history, and for the dis-
trict court in which they are tried, the study’s main result is that large disparities in
sentence length exist on the basis of characteristics the guidelines are supposed to rule
out. More specifically, Blacks face harsher sentences than Whites, men face harsher
sentences than women, defendants with low levels of education and low levels of
income face harsher sentences compared to better-educated and wealthier defendants,
and non-U.S. citizens face harsher sentences than U.S. citizens. Furthermore, judges
routinely ignore the sentence ranges (in more than 20 percent of the cases) in ways that
point to bias against the groups just mentioned. This study (as well as several others
not discussed here) conclude that not only do judges demonstrate bias when sentencing,
but also that the use of sentencing guidelines is not wholly effective in mitigating these
biases.
Another body of research offers an interesting challenge to the idea that sentencing
bias stems from judicial decisions. Instead, these studies focus on the behavior of pro-
secutors, and argue that the existence of prosecutorial bias may be what truly accounts
for sentence disparities across race and gender. The first study (Rehavi and Starr, 2014)
focuses on racial bias, specifically in the sentencing of Black men compared to White
men. Prosecutors have wide discretion in how they decide initially to charge defen-
dants. Of great importance is whether a mandatory minimum sentence is attached to
the initial charge. If yes, a defendant that is eventually found guilty will have to face at
least that sentence, regardless of judicial discretion.
The study uses a rich data set of federal cases for the sample period 2007 to 2009,
and controls for several confounding factors such as type of crime, criminal history,
age, education, economic factors, and type of defense counsel. The first result found is
that Black men are charged more severely compared to White men, especially with
charges that carry mandatory minimum sentences. The next finding is that these dif-
ferential charges ultimately lead to differential sentencing, with sentences that are
approximately 10 percent longer for Black men over White men. Furthermore, the
study finds that this difference in sentencing can largely be attributed to prosecutorial
discretion, as opposed to judicial discretion.
The second study (Starr, 2015) offers a similar analysis, but considers prosecutorial
bias against men compared to women. The results here are even more pronounced than
those found with respect to race. The average sentence is 63 percent longer for men
compared to women, controlling for offense level, criminal history, and several other
factors. Furthermore, women are less likely to be charged, less likely to be convicted if
charged, and less likely to serve time in prison if convicted. Taken together, these two
studies paint a bleak picture for defendants who are Black men—they face harsher
sentences for being Black and for being men. It must be noted, however, that while
these studies do find prosecutorial bias in charging and sentencing, that doesn’t com-
pletely rule out the possibility of judicial bias. From a research perspective, the impor-
tant point is that when considering judicial bias, as many confounding factors as
possible must be taken into account. The behavior of prosecutors is one such con-
founding factor.
Another avenue in which judicial bias may come into play is through the setting of
bail. One study (Ayres and Waldfogel, 1994) attempts to examine whether there is a
difference in how bail is set for minority defendants versus White defendants. When
judges set bail, there are many factors that can be considered in determining the
amount to impose on a particular defendant. At its core, the role of bail is not punitive,
but to assure that the defendant appears in court when required. If a defendant does
not appear, the bail is forfeited either directly by the defendant or by a bail bondsman.
Typically, the greater the amount of bail that is set, the greater is the incentive for the
defendant to appear in court, or for the bail bondsman to guarantee that the defendant
appears in court. If bail is set without regard to race, different bail amounts should
primarily (but not necessarily only) reflect differences in defendants’ flight risks, with
higher bail amounts reflecting higher flight risks. If, instead, bail is set with racial bias,
minority defendants with equal flight risks to White defendants may, nevertheless, face
higher bail amounts. Before turning to the empirical results of the study, it is instructive
to highlight the theoretical economic model that underlies the empirical analysis, as it
provides an excellent example of the way economists attempt to sort through various
confounding factors.
Consider a defendant who has a probability of flight risk that is inversely related to
the amount of bail that is set by the court. That is, the higher the bail, the lower will be
the flight risk. The judge’s objective in this model is to set an amount of bail that
achieves a desired flight risk, and this flight risk should be the same across all defen-
dants. Assume there is a high flight risk defendant (defendant A), and a low flight risk
one (defendant B). This means that if both defendants face the same bail amount, A is
more likely to flee than is B. Thus, to equate the flight risk across the two defendants, A
must face a higher bail amount than does B.
For example, assume that if bail is set at $5,000 for each defendant, A’s flight risk is
20 percent and B’s flight risk is 15 percent. If the desired flight risk is 10 percent, the
judge must set a higher bail for A than for B, and both bail amounts must exceed
$5,000. So, maybe the appropriate bail amounts to secure a 10 percent flight risk are
$10,000 for A and $7,500 for B. Although these bail amounts differ, the difference is
attributed to differential flight risks, not to judicial bias. But now let’s say that A is a
minority defendant, and B is White. If judicial bias does exist, it is possible that A’s
amount may exceed $10,000, such as $12,500, and this additional $2,500 cannot be
explained by any difference in flight risks.
Using data from criminal cases in New Haven, Connecticut, for the year 1990, the
study examines the effect of race on the level of bail, controlling for several other fac-
tors, especially those relating to the nature and severity of the crime. The data set
consists of 1,366 defendants, made up of approximately 19 percent White men, 53
percent Black men, 11 percent Hispanic men, and 17 percent women (White and min-
ority). The most common offenses involve drugs, assault, disorderly conduct, and lar-
ceny, but there are several other less frequent offenses. The average bail amount is
$3,466, and the average fee paid to bail bondsmen is $177.
The study finds that race does affect bail amounts, with Black men facing (on aver-
age) 35 percent higher bail, and Hispanic men facing 19 percent higher bail, than
White men. The problem with these results, however, is that due to data limitations the
regression equation does not include many other factors that could affect the determi-
nation of bail, such as the weight of the evidence against the defendant, the defendant’s
prior criminal record and prior court appearance record, and so on. The fewer con-
founding factors that can be controlled for, the less confident we are that racial bias is
accounting for the differential bail amounts.
To circumvent the omitted variables problem, the study presents a novel idea.
Instead of looking at differences in bail amounts to test for racial bias, it looks at dif-
ferences in the bail bond rates bail bondsmen charge their customers. If a defendant
uses a bail bondsman, it is the bondsman who puts up the bail and charges the defen-
dant a percentage fee. Although there are regulations that govern the setting of bond
rates, bondsmen do have the opportunity to vary rates across defendants. What the
study finds is that bond rates are lower for minorities than they are for Whites. The
surprising interpretation of this result, however, is that it demonstrates that racial bias
against minorities does exist in the setting of bail. How is this conclusion reached?
A defendant who uses the services of a bail bondsman agrees to pay a percentage
rate of the bail amount to have the bondsman put up the bail. If the defendant does
not appear in court, the bondsman forfeits the bail amount (or in some cases, a portion
of the amount). This provides the bondsman with an incentive to assure that the
defendant does not flee. For example, a bondsman who has $50,000 at risk if a defen-
dant fails to appear is likely going to devote more resources to monitoring the defen-
dant’s whereabouts and, if necessary, searching to reapprehend the defendant,
compared to a bondsman who only has $10,000 at risk. The more likely a defendant is
to flee, the more costly (in terms of flight risk) it is for the bondsman to put up the bail.
If we assume that the bail bonds market is fairly competitive and individual bonds-
men face similar costs in operating their businesses, we can expect that differences in
bond rates across defendants are largely due only to differences in flight risk. Quite
simply, defendants who have higher flight risks are expected to face higher bond rates
than those who have lower flight risks. If, as the study finds, minority defendants face
lower bond rates than do White defendants, it must be that minority defendants have
lower flight risks. And, the study suggests, the bail bonds market in New Haven is
competitive, especially compared to other Connecticut towns. At the time of the study,
there were eight active bail bond dealers in New Haven whose average bond rates were
64 percent of the statutory maximum, compared to other towns with one or two deal-
ers whose average rates were typically 99 percent of the maximum.
The last piece of the puzzle is to explain why minority defendants may have lower
flight risks. Let’s return to the numerical example introduced above. With defendant A’s
bail set at $10,000 and B’s set at $7,500, we assumed that these bail amounts equalized
the flight risks between the defendants at 10 percent. The difference in the bail amounts
can be explained by the difference in flight risks before bail was set—defendant A had
the higher flight risk. But after bail is set when defendants may seek the service of a
bondsman, with equal flight risks the bail bond rates should be very similar across
defendants. If, instead, bail is set at $12,500 for defendant A, the increased bail lowers
the defendant’s flight risk and as a result may lead to a lower bond rate. If minority
defendants face lower bond rates, it must be because they represent lower flight risks,
which in turn must be because their bail is set at too high a level. Thus, lower bail bond
rates for minorities are an indication that there is judicial bias in the setting of bail.
What’s clever about this study is that it examines the bail bonds market in an
attempt to identify judicial bias. Trying to sort out why judges do what they do can be
an empirical mess, as it can be impossible to distinguish between subjective values that
vary from judge to judge. By focusing on the bail bonds market, competitive bail
bondsmen must survive by setting bond rates that are neither too high nor too low
relative to their rivals. Thus, it is market conditions that force bond rates to vary pri-
marily due to differences in flight risks caused by differences in bail amounts between
minority and White defendants. Of course, the study correctly points out that there still
may be other factors accounting for the differences in bond rates that are not due to
judicial bias. Nevertheless, this novel approach to identifying judicial bias provides an
excellent example of economic reasoning.
Another study (McIntyre and Baradaran, 2013) examines potential racial bias in the
setting of bail, but more specifically in terms of the judicial decision to release or hold
a defendant pretrial. That is, the main focus of this study is not on the amount of bail
set, but on whether bail is granted so that the defendant has an opportunity to be
released. Using a large data set covering the years 1990 to 2006, the study finds that 43
percent of Black male defendants, and 34 percent of White male defendants, are held
pretrial. This racial gap may, at first blush, be interpreted as evidence of judicial racial
bias, but only if an important confounding factor is not taken into consideration. One
key factor in a judge’s determination to deny bail is the defendant’s likelihood of
committing another crime before the trial of the previous crime takes place. When the
probability of rearrest is taken into account, the study finds no difference in the prob-
abilities of Black and White defendants being held. Furthermore, while not its main
focus, the study is able to examine potential differences in bail amounts between Black
and White defendants, and finds again that when the probability of rearrest is taken
into account, there is no difference in these amounts.
Another study of racial bias in the setting of bail (Arnold, Dobbie, and Yang, 2018)
attempts to distinguish not only between statistical discrimination and racial dis-
crimination, but also between various roots of racial discrimination. As discussed above
with the previous two studies, two of the key factors affecting a judge’s decision in
setting bail relate to a defendant’s prior misconduct—flight risk and the likelihood of
continued criminal activity. If judges are racially biased against Black defendants when
making bail decisions, White defendants are predicted to engage in excessive pretrial
misconduct relative to Black defendants (just as seen above with flight risks being
higher for White defendants possibly due to their lower bail amounts). But is the root
of this racial bias due to explicit animosity judges have against Blacks, or to some
other factors?
Using a large data set compiled from Philadelphia, Pennsylvania, court records for
the period 2010 to 2014 (approximately 163,000 cases) and Miami, Florida, court
records for the period 2006 to 2014 (approximately 93,500 cases), the study finds that
statistical discrimination does not account for the disparity in the setting of bail
between Black and White defendants. The reason for this result is that the study finds
that White defendants are significantly more likely to engage in pretrial misconduct
relative to Black defendants. The study suggests that this evidence of racial bias may
(at least partially) be explained not by explicit animosity against Black defendants, but
instead by judges relying on stereotypes that exaggerate the extent of Black defendants
engaging in pretrial misconduct.
For example, the study finds that both White and Black judges exhibit racial bias
against Black defendants. Typically, in models of racial bias, Black judges tend not to
exhibit animosity against defendants of their own race. If in this case there is evidence
of same-race bias, it may be attributed to Black judges believing that Black defendants
are different than White defendants, even if not true. It is not animosity driving this
result, but stereotyping. In addition, the study finds less racial bias among more
experienced judges. This result suggests that inexperienced judges may be more likely to
rely on stereotypes in making bail decisions. If it was animosity explaining the racial
bias, the experience level of the judge would not be expected to matter. Biased judges
would be biased, regardless of their experience. This further suggests a possible solution
to mitigating racial bias in the setting of bail—judges could be better trained to avoid
stereotyping.
The setting of bail occurs early in a defendant’s relationship with the criminal justice
system. At the other end of the spectrum, for many imprisoned defendants their time in
prison ends with their release through the granting of parole before their maximum
sentenced is reached. If members of the parole board are racially biased, Black pris-
oners may face worse parole outcomes compared to White prisoners, either in being
denied parole outright, or in having their parole delayed more often. One study (Anwar
and Fang, 2015) attempts to determine if parole decisions are racially biased by using a
method that parallels the one used in the study above (Ayres and Waldfogel, 1994) on
bail determination.
In the bail study, judges are concerned about setting bail to achieve a desired level of
flight risk. In setting bail, just observing different bail amounts between Black and
White defendants doesn’t tell us much about why the amounts are different, as there
are many factors that affect bail amounts. With parole, the study argues that parole
boards are concerned with achieving a desired level of recidivism. The key trade-off a
parole board faces is between the cost of continued incarceration versus the cost of the
released prisoner committing future crimes. In granting parole, just observing different
parole outcomes between Black and White prisoners doesn’t tell us much about why
the outcomes are different as there are many factors that affect parole.
The bail study uses different flight risks (as measured by different bail bond rates)
between Black and White defendants as an indicator of judicial racial bias. Because it is
found that Black defendants have lower flight risks than White defendants, the bail study
concludes that Blacks may face racial bias by judges setting excessive bail amounts. In
the parole study, it is different recidivism rates between Black and White released pris-
oners that are used to determine if racial bias is occurring in the granting of parole. If it
is the case that the parole board is only interested in achieving a desired level of recidi-
vism, race should not be a factor in granting parole. Thus, if it is found that Black
released prisoners have lower rates of recidivism compared to White released prisoners,
Black prisoners face a disadvantage in parole determinations possibly due to racial bias
among members of the parole board. That is, if there is a lower recidivism rate for
Blacks, this suggests that they are not being released when the target recidivism rate is
being reached. Using data from Pennsylvania for all prisoners released from prison for
the period 1999 to 2003, the study finds that there is no difference in recidivism rates
between Black and White released prisoners, and concludes that parole determinations
(at least with these data) are not subject to racial bias.
Juror bias
In Chapter 5, a couple of studies that examined potential juror bias in death penalty
cases were discussed. To elaborate on that discussion, one other study (Anwar, Bayer,
and Hjalmarsson, 2012) examines juror bias more generally, that is, in noncapital cases.
The study finds that the presence of Black jurors does impact verdicts, reducing the
conviction rate of Black defendants and increasing the conviction rate of White
defendants, compared to what would be the case without the presence of Black jurors.
What is unusual about this result is that it holds as long as Black jurors are in the jury
pool even if there are no Blacks seated on the actual jury. Quantitatively, the study finds
that juries drawn from all-White jury pools convict Black defendants at a 16 percent
higher rate than they do White defendants, but this difference in conviction rates dis-
appears as long as the jury pool includes at least one Black member.
How does the presence of at least one Black member on the jury pool impact con-
viction rates? The study offers two basic explanations—one involving a direct effect and
the other an indirect effect. The direct effect is straightforward. If the seated jury
includes at least one Black juror, that juror may impact deliberations, and/or it may
affect the way the prosecution and defense present their cases. And the only way in
which a seated jury can include a Black juror is if there was at least one Black member
in the jury pool. The indirect effect, while more subtle than the direct effect, is impor-
tant to understand in appreciating how an all-White seated jury may be impacted by
previously having at least one Black member in the jury pool.
In seating a jury, attorneys (and judges) participate in a jury selection process. This
process typically begins with prospective jurors filling out detailed questionnaires, and
then possibly being eliminated for cause (that is, a legitimate reason that excludes an
individual from sitting on the jury, such as they have a prior relationship with the
defendant). In addition to striking a potential juror for cause, the attorneys are given a
number of peremptory challenges to use. Traditionally, a peremptory challenge provides
an attorney with the complete discretion to strike any potential juror without having to
justify the strike. Currently, there may be restrictions in using peremptory challenges if
they are deemed to be highly discriminatory. Nevertheless, attorneys are still given a
tremendous amount of discretion in using peremptory challenges.
Attorneys want to strike jurors believed to be unfavorable to their side. This may be
difficult to determine, but in addition to the information from the questionnaires,
attorneys may consider demographic characteristics such as race, gender, age, religion,
and so on in deciding who to strike. Because there are only a limited number of per-
emptory challenges awarded to each side (depending on the nature of the case), the less
favorable is the jury pool to one particular side, the more difficult it will be for that side
to strike all the jurors they desire. And this is at the heart of the indirect effect.
For example, consider a Black defendant and assume that there is an all-White jury
pool. If the prosecuting attorney is given a number of peremptory challenges, she will
use all of them to strike the White prospective jurors she deems least favorable to her
case. Now add some Black prospective jurors to the jury pool, and assume that, on
average, Blacks are less favorable to the prosecutor’s side than are Whites. This makes
the jury pool, again on average, less favorable to the prosecution. With her limited
number of peremptory challenges, if she uses them to strike Blacks, the Whites least
favorable to her case may end up on the jury, reducing the chance of conviction for the
Black defendant even for an all-White jury.
If the goal is to reduce racial bias among juries, the study offers a possible solution
that simply involves requiring jury pools (as opposed to seated juries) to be demo-
graphically mixed. This proposed solution is not just of academic interest. There is a
real-world example of a similar policy change. From the mid-1970s through the late
1990s, a number of states changed their jury pool selection procedures to allow for
more randomness in choosing prospective jurors. Prior to these changes, many jur-
isdictions allowed for specific people—jury commissioners, civilian jury committees,
and so on—to choose the individuals eligible to serve on a jury. This nonrandom dis-
cretion is believed to have led, in some jurisdictions, to the exclusion of Blacks and
other minorities from the jury pool. One study (Lee, 2017) examines the impact of
these changes in jury pool procedures on prison admissions for Black and other min-
ority defendants. The study finds a significant drop in the proportion of minority prison
admissions due to the broadening of jury pool demographics.
Race and criminal background checks
Upon release from prison, will ex-convicts resume committing crimes? To the extent
that the answer is yes, it is important for the authorities to consider policies that may
discourage recidivism. Criminal deterrence policies in general may discourage first-time
as well as repeat offenders. In addition, certain policies tend to specifically target repeat
offenders, such as the three-strikes law (Chapter 4) or the sexual offender registration
law (Chapter 3). One factor that may enhance recidivism is the difficulty ex-convicts
have in finding legitimate job opportunities.
Employers may be unwilling to hire workers who have criminal records. Such workers
may be considered untrustworthy, or employers may be concerned with being liable for
the criminal actions of their employees, or certain jobs may, by law, be unavailable to ex-
convicts. Whatever the case, if ex-convicts do have a difficult time returning to the legit-
imate labor force, this may increase their likelihood of returning to committing crimes.
One possible solution to this problem is to not allow employers to perform criminal
background checks so that ex-convicts can be given a better chance to find legitimate
employment. In effect, restricting the use of criminal background checks may be a useful
social policy to help reduce crime.
One study (Holzer, Raphael, and Stoll, 2006), however, points out that there may be
a downside to restricting employers from conducting criminal background checks. It is
a striking fact that a fairly large portion of men in the U.S. serve some time in prison
during their lifetime, with that portion being approximately 9 percent. But that portion
can be segmented by race, with the numbers showing that 28 percent of Black men, 16
percent of Hispanic men, and 4 percent of White men serve some time in prison. If an
employer is concerned about the criminal history of a potential employee but cannot
gain access to criminal records, the employer may decide to use the employee’s race as
a proxy for criminal history. With a large portion of Black men having served time in
prison, an employer may incorrectly exclude a Black employee who does not have a
criminal history. Thus, if criminal background checks are not restricted, this may
improve the job prospects of minorities who have no criminal history.
This leaves two opposing effects. If criminal background checks are allowed, fewer mino-
rities with criminal records may find employment, but minorities without criminal records
may face better job prospects. Conversely, if criminal background checks are restricted, fewer
minorities without criminal records may find employment if employers use race as a proxy for
criminal history, but minorities with criminal records will face better job prospects. In terms
of social policy, then, the relevant question is: does allowing employers to perform criminal
background checks improve or worsen the job prospects of minority workers?
The study attempts to provide an empirical answer to this by using survey data col-
lected from over 3,000 firms in Atlanta, Boston, Detroit, and Los Angeles metropolitan
areas between June 1992 and May 1994. In their sample, approximately 32 percent of
firms always perform criminal background checks, 17 percent sometimes perform
checks, and 51 percent never perform checks. Also, approximately 62 percent of the
firms report that they will probably not or definitely not hire applicants with criminal
backgrounds, and 38 percent report that they probably will or definitely will hire such
applicants. Furthermore, the aversion to hiring workers with criminal backgrounds is
much stronger than employer aversion to hiring workers with other potential stigmas,
such as being a welfare recipient, having no high school diploma, having a spotty work
history, or being unemployed for more than a year.
The main finding of the study is that employers who perform criminal background
checks are more likely to hire Black workers compared to employers who do not per-
form background checks. The improved job prospects of Blacks who have no criminal
history are found to more than offset the worsened prospects of those who have crim-
inal records. The study concludes that making it difficult for employers to perform
criminal background checks may exacerbate racial discrimination in hiring practices
and ultimately hurt more potential minority employees than it helps. The study does
correctly point out, however, that there will be ex-convicts, even those with minor
criminal histories, who will find it difficult to enter the legitimate labor market if
background checks are allowed. Part of the social cost associated with this effect may
be an increase in recidivism.
Bias in Australia
While it is difficult to find formal economic studies of racial discrimination in the
criminal justice system that use international data, it will be instructive to present at
least one (nonformal) international example of such bias. In Australia in 1991, a five-
volume report entitled The Royal Commission into Aboriginal Deaths in Custody fueled
a substantial public discussion of possible reforms to the Australian criminal justice
system. The main finding of the report was that the Aboriginal people were over-
represented in custody. Although it can be argued that this custodial overrepresentation
was largely explained by the relatively high Aboriginal offense rate (for example, see
Weatherburn, Fitzgerald, and Hua, 2003), there were also claims of systemic bias in the
criminal justice system.
While the report recognized that reforms to the criminal justice system were needed,
other concerns were highlighted:
Changes to the operation of the criminal justice system alone will not have a sig-
nificant impact on the number of persons entering into custody or the number of
those who die in custody; the social and economic circumstances which both pre-
dispose Aboriginal people to offend and which explain why the criminal justice
system focuses upon them are much more significant factors in over-representation.
(Cunneen, 2006, p. 355, quoting the Royal Commission report)
To address these concerns, the report put forth a total of 339 recommendations: 126
recommendations dealing with the underlying socioeconomic factors relating to over-
representation; 106 recommendations dealing with the criminal justice system and
overrepresentation; and 107 recommendations dealing specifically with deaths in
custody.
In response to the report, the Australian government allocated $400 million (Aus-
tralian) in an attempt to implement many of the recommendations. Although approxi-
mately one-third of the recommendations involved reforms to the criminal justice
system, only a small amount of funds ($7.2 million, or 1.9 percent of the total) was
allocated toward reforms to policing, custodial arrangements, criminal law, judicial
proceedings, and so on. The greatest amount of funds ($71.6 million, or 17.9 percent)
was allocated toward Aboriginal drug and alcohol services. Other funds were allocated
in the following way: land acquisition and development programs ($60 million, or 15
percent); legal services ($50.4 million, or 12.6 percent); community development
employment programs ($43.9 million, or 11 percent); and the rest to various other
social programs (see Cunneen, 2006). How effective these programs have been in alle-
viating Aboriginal overrepresentation remains an open question, but the Australian
experience demonstrates the willingness of the authorities to at least recognize and
address potential bias in their criminal justice system.
In all, there is almost universal acceptance that racial discrimination exists in the
criminal justice system. Among the numerous studies discussed in this chapter (and in
Chapter 5), there is evidence that such bias may be found at all levels of the system,
from police officers, prosecutors, judges, jurors, elected officials, and others. However,
and importantly, the fact that different racial and ethnic groups, as well as different
genders, are treated differently by the criminal justice system is not proof that bias
based on animosity alone is present. As mentioned earlier, if defendants are truly dif-
ferent based on a number of confounding factors related to criminal behavior and
criminal history, an efficient system should be expected to treat defendants differently.
The main contribution of economic analysis in this case is to explicitly recognize that
a demonstration of racial discrimination requires a careful consideration of the many
other factors that can lead to how suspects, defendants, prisoners, death row inmates,
and so on are treated. Furthermore, identifying bias does not immediately suggest how
policy can be implemented to mitigate that bias, nor what the cost and benefits of the
policy changes will be. Racial, gender, and other biases represent some of the most
difficult and contentious social policy issues facing the criminal justice system.
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7 Private crime deterrence
Crime fighting is not just for public authorities and superheroes. Ordinary citizens also
devote a tremendous amount of resources to deterring crime. In fact, private expendi-
tures on crime deterrence typically outweigh public expenditures by a factor of three
(see Philipson and Posner, 1996). Typical deterrence efforts often involve home security
measures such as deadbolt locks, bars on windows, burglar alarms, fences, dogs,
weapons, and so on. Residents in certain neighborhoods and gated communities may
hire private security officers to protect themselves and their property. While it is pru-
dent to carefully scrutinize the costs and benefits of devoting public resources to fight-
ing crime, should we care at all about how private citizens spend their own dollars on
deterrence?
Generally, when economists consider private decisions to purchase goods and ser-
vices, it boils down to a very simple premise: if an individual purchases a product, the
value (or willingness to pay) for that product must exceed its price. If you buy a tele-
vision set that is priced at $1,000, it must be the case that you value it at more than
$1,000. If you value it at less than $1,000, it would make you worse off to buy it.
Whatever you decide to do, it is not likely that you will find scholars debating the role
of public policy in either encouraging or discouraging your purchase decision. Yet
when it comes to buying home security devices, there is scholarly interest in how pri-
vate individuals behave. Why is this the case?
One obvious answer is that your purchase may be used to directly harm others. If
you buy a gun to protect yourself, you may one day use it to harm someone in a fit of
rage. Or, with a less severe example, if you put bars on your windows, your neighbors
may simply find them to be unattractive. But even if your private purchases of security
devices do not directly harm anyone else, there may be a bigger social concern
involved: do your security measures actually deter crime? If not, the resources devoted
to the goal of deterring crime may, from a social perspective, be wasted.
Deterrence versus displacement

It is simple to identify the primary motive of individuals who purchase home security
devices—they want to reduce or prevent the amount of theft they face. If you put bars
on your windows and expensive deadbolt locks on your doors, you are concerned with
keeping thieves out of your house, not your neighbor’s house. Granted, you may not
want your neighbor to be robbed, but that is not your main concern. Unfortunately, by
making your house more secure, you may be making it more likely that your neighbor’s
house will be robbed.
By putting bars on your windows, you are clearly demonstrating to potential crim-
inals that your house may be difficult to rob. Although some criminals may still find it
worthwhile to break into your house, others are likely to just move down the road to
find easier targets. Thus, while this particular investment in home security may deter
criminals from robbing your house, it may not deter criminals from robbing someone
else’s house. If this is the case, your actions do not deter crime; instead, crime is dis-
placed (see Shavell, 1991).
The key issue here is whether your private security measures are observable by
criminals. When criminals can clearly observe bars on windows, fences, or loud dogs,
they may target houses that do not invest in these types of security measures. While
you benefit from these actions, society does not. In other words, when considering the
social objective of deterring crime, if crime is only displaced instead, costly resources
are being used yet crime rates are not changing. Private benefits are not translating into
broader social benefits.
On the other hand, there may be private security measures that are unobservable to
criminals, or at least not easily observable. For example, you can install a safe in your
house to protect your valuables, or a burglar alarm, that is not known to criminals
prior to entering your home. These measures may not completely deter criminals from
breaking into your house, but they will increase the costs they face of stealing from
you. And the main objective of crime deterrence, through public or private measures, is
to increase the costs of crime to rational criminals. Furthermore, with unobservable
security measures, not only can you reduce the probability of your house being robbed,
you can reduce the probability of your neighbor’s house being robbed. This is true even
if your neighbor makes no investments in private security measures.
If security measures are not easily observed, in deciding to commit a crime a crim-
inal may take into account the increased costs that will be faced. Will a potential
mugging victim be carrying a concealed weapon? Will an automobile have a hidden
tracking device that will make it easier for the police to trace the location of the stolen
car? Will a house have a silent alarm that alerts security officers if a break-in occurs? If
a criminal cannot precisely determine which victims have installed unobservable
security devices, the criminal will confront a higher probability of facing such devices
regardless of the identity of the victim. Thus, unobservable measures have the ability to
deter crime, not just to displace it. Private security measures in this case yield private
benefits that do translate into social benefits.
Taken together, from a social perspective it can be argued that private individuals
overinvest in observable security measures, and underinvest in unobservable ones. Pri-
vate observable measures yield private benefits but not social benefits if crime is simply
displaced from one victim to another. These resources are, in a social sense, wasted.
Private unobservable measures, however, yield private and social benefits. But from a
private perspective, some individuals may not find it in their own best interest to invest
in unobservable security measures even if such investment would be socially optimal.
After all, if your neighbor can take an action to reduce the overall crime rate, why
should you spend any extra to do so? By not taking into account the additional social
benefit of one’s actions, it may be the case that not enough resources are being devoted
to private measures. From a policy perspective, some economists argue that a possible
role for social intervention is to discourage (or at least not to encourage) observable
private security measures, but encourage unobservable ones.
Private crime deterrence 87
One study (Ayres and Levitt, 1998) examines the use of an unobservable security
device that was designed to reduce car theft. In 1986, the Lojack Company introduced
a radio transmitter-tracking device (referred to simply as Lojack) that can be installed
in cars. If a car with a Lojack is stolen, the police can remotely activate the transmitter
and track the movement and location of the stolen vehicle. Massachusetts was the first
state in which Lojack was used, and by 1994 (the end date for the study’s sample
period) a dozen other states followed suit.
For several reasons, Lojack provides an excellent setting in which to test the effect on
the crime rate of an unobservable private security measure. First, Lojack truly is a
private security measure. New car buyers can pay a one-time fee at the time of pur-
chase to have the device installed. Second, Lojack is an unobservable security measure.
Lojack can be hidden in one of many places on a car. As a condition for the Lojack
company to be allowed entry into a market, the authorities require Lojack not to be
identifiable in any specific automobile. Furthermore, car owners can qualify for insur-
ance premium discounts only if they do not identify the existence of Lojack in their
cars. Third, Lojack is predicted to deter auto theft by allowing the police to more
quickly locate stolen cars and possibly apprehend thieves, as well as to locate and shut
down “chop shops” where the stolen cars are disassembled. Also, to the extent that car
thieves are repeat offenders, the incapacitation effect of prison can further lower the
crime rate. Finally, as an unobservable security measure, Lojack is predicted to offer
little deterrence value to the owner of a car. The private benefits of Lojack are found in
higher retrieval rates of stolen cars, and not in lowering the probability that a specific
car is stolen.
The empirical results of the study are quite striking. It is found that for every three
Lojacks that are installed, one auto theft is deterred. Furthermore, this deterrent effect
does not depend on wide use of Lojack. Because Lojack is available for new cars only,
typically less than 2 percent of registered vehicles in a covered market are equipped
with the device. But by increasing the probability of any new car having the device,
auto thieves face higher costs of crime and appear to be deterred by Lojack.
As for crime displacement, the study attempts to measure three types of displace-
ment effects that are associated with Lojack. First, no evidence is found that auto
thieves substitute between markets with Lojack and markets without Lojack. Second,
the introduction of Lojack does not appear to increase crime rates of other crimes such
as burglary, robbery, assault, murder, and so on. Finally, one displacement effect that is
found is an increase in car thefts of older cars that were unlikely to have Lojack. This
displacement effect, however, is found to be small compared to the deterrent effect.
The study, in an attempt to be as thorough as possible, addresses other possible
effects that may account for the lower car theft crime rate. When Lojack is introduced
into a market, it may coincide with an increased police effort to fight car theft. There
may also be other precautions car owners take to deter theft. If there are additional
public and private enforcement efforts to deter car theft, too much credit may be given
to Lojack’s role in deterring crime. The study does not find evidence that these other
effects exist.
One last effect that the study attempts to measure is the extent of the underprovision
of an unobservable private security device. As mentioned above, if an individual’s pri-
vate benefit of purchasing a security device falls short of the social benefit, there may
be a role for social intervention to encourage the purchasing of the device. The study
estimates that the private benefits of Lojack are only about 10 percent of the social
benefits in terms of crime reduction. Thus, an individual may decide that it is not pri-
vately worth installing Lojack, especially given the fact that others may be installing
the device, leading to an overall reduction in car theft.
If Lojack truly is an extremely efficient method for deterring car theft, it may be in
the authorities’ best interest to provide incentives for more individuals to install the
device. During the study’s sample period, one such incentive mechanism that was tried
was allowing for state-mandated insurance discounts for car owners who installed
Lojack. This provides an additional benefit to car owners that is strictly privately
incurred. These discounts, however, appeared to be far below the level that would be
considered socially optimal.
Shall-issue laws
There have been many economic studies that have examined the effects of gun control
laws on crime. The main focus of several of these studies has been on laws that allow
individuals to carry concealed handguns in public. These particular laws are known as
“shall-issue” laws. The main benefit of shall-issue laws is that if more individuals are
allowed to carry concealed handguns, criminals (even those who use weapons) may
face higher costs of committing crimes. The key point behind shall-issue laws, however,
is that the handguns must be concealed. As with the Lojack security device discussed
above, if individuals are allowed to carry concealed handguns, criminals will face a
higher probability of any potential victim being armed. It is this enhanced probability
that imposes higher costs on criminals, thus potentially reducing crime rates.
In theory, however, the effect of shall-issue laws on crime rates is ambiguous, for
several reasons. First, there is the possibility that shall-issue laws will divert criminals
from committing violent crimes toward committing nonviolent crimes. Thus, while
there may be fewer muggers, there may be more burglars and car thieves. Second, the
easier it is to secure a legal gun permit, the easier it may be for criminals to get guns,
even with purchasing safeguards in place. Individuals who are legally able to purchase
handguns may decide to sell their guns to criminals, or may have them stolen. Third,
the more guns there are in circulation, the greater the possibility of gun-related acci-
dents, suicides, and spontaneous acts of rage that turn deadly. Finally, to the extent
that there are more armed potential victims, criminals may decide to escalate the use of
violence themselves when committing crimes.
One seminal study (Lott and Mustard, 1997) empirically examines the effect of shall-
issue laws on crime rates, and reaches a succinct and explicit conclusion: “Our evidence
implies that concealed handguns are the most cost-effective method of reducing crime
thus far analyzed by economists, providing a higher return than increased law enfor-
cement or incarceration, other private security devices, or social programs” (p. 65).
Furthermore, the study estimates that had the group of states that did not adopt shall-
issue laws instead adopted them, the policy change would have reduced victim costs (in
1992) by $5.7 billion.
It is instructive, without going into too much detail, to delve into how the $5.7 billion
amount is calculated. The study uses a statistical model to predict the effect of shall-issue
laws on several different crime rates. It then applies these predictions to the states that had
not adopted the laws to answer a hypothetical question: how would crime have been
affected in these states had shall-issue laws been adopted? It then assigns monetary values
for the costs of each particular crime and calculates the net savings in victims’ costs.
Here are the numbers (Lott and Mustard, 1997, table 5, p. 29): there would have
been 1,414 fewer murders (valued at $3 million per murder); 4,177 fewer rapes (valued
at $90,000 per rape); 60,363 fewer aggravated assaults (valued at $23,000 per assault);
11,898 fewer robberies (valued at $8,000 per robbery); 191,743 more larcenies (valued
at $380 per larceny); 89,928 more car thefts (valued at $3,888 per theft); and 1,052
more burglaries (valued at $15,000 per burglary). After totaling all these numbers, the
study winds up with a reduction in victim costs from violent crimes of $6.1 billion, and
an increase in victim costs from nonviolent crimes of $400 million. This leaves a net
reduction in victim crime costs of $5.7 billion.
It needs to be made clear that these numbers should not be taken as fact. They are
average numbers that can have quite a lot of variation around them. Furthermore, as
always, there is substantial debate over the statistical methodology used in this study.
That said, the numerical calculation the study presents illustrates a common technique
economists use to quantify costs and benefits. It is simply a striking way of demon-
strating that, when considering trade-offs associated with shall-issue laws, this study
concludes that the laws yield positive net benefits in crime reduction, and these net
benefits may be quantitatively large.
Then again, some studies that followed the one above come to a different conclusion.
For example, one study (Duggan, 2001) argues that it is difficult for researchers to
examine cross-state or cross-county gun ownership variations because the most reliable
data are available at the national level. To circumvent this problem, the study proposes
a proxy for gun ownership that allows for regional variation. The study suggests that
the sales of the firearm magazine Guns and Ammo makes an excellent proxy for state
and county gun ownership, and provides several justifications for this claim.
Most important, Guns and Ammo sales data are available at the state and county level.
Also, the magazine places more emphasis on handguns (as opposed to long arms) when
compared to other top-selling firearms magazines. Because handguns are common fire-
arm weapons used in crimes and for self-defense, the Guns and Ammo sales data may help
identify handgun ownership patterns. The study also finds that the sales data are corre-
lated with several individual characteristics (such as high school but not college graduate,
living in Southern or Western states, and so on) that are themselves correlated with gun
ownership. Furthermore, the study finds that Guns and Ammo regional sales are directly
related to the death rate from gun accidents, the sale of firearms (measured by the number
of gun shows), and National Rifle Association membership. All these factors suggest that
the Guns and Ammo sales data can be a reasonable proxy for regional gun ownership.
The study’s main result is that increases in gun ownership lead to significant increa-
ses in the overall homicide rate. The study is careful to rule out the reverse causation
problem that gun ownership and homicide are positively related not because ownership
leads to more homicides, but because more homicides enhance the demand for gun
ownership. Also, the study does not find any impact of shall-issue laws on the rate of
gun ownership or on crime rates, in contrast to the findings of the previous study.
As we have seen time and again with other crime topics, there is no consensus that
has been found. Here is the strong conclusion of another study (Ayres and Donohue,
2003) on shall-issue laws:
There remains no robust, credible statistical evidence that the adoption of shall-
issue laws will generally lower crime, and indeed the best, albeit admittedly
imperfect, statistical evidence presented thus far points in the opposite direction:
that the adoption of shall-issue laws will generally increase crime.
(p. 1285)
If this sounds familiar, it is because the debate on shall-issue laws closely parallels that
of the death penalty.
There is broad agreement that shall-issue laws have both the potential to reduce the
crime rate through a deterrent effect, or increase the crime rate through an enhancement-
of-violence effect. Economists expect that these two theoretical effects will trade off
against each other and, therefore, these offsetting effects must be sorted out empirically.
In examining the empirical evidence, however, different studies reach completely differ-
ent conclusions. Depending on the study, conclusions range from shall-issue laws reduce
crime; they increase crime; or they have no effect on crime. The differences in the studies
are largely due to differences in the data sets and to statistical methodological issues,
And, as with the studies on the deterrent effect of the death penalty, the authors of the
gun control studies have passionate and sincere disagreements that are unlikely ever to
be easily resolved.
Gun control
Although there are federal gun control laws that affect all states, each state has the
ability to augment these laws. Thus, some states have tougher gun control laws than
other states. A common problem in dealing with laws that vary across states is that
criminal behavior can be displaced from states with stringent laws to states with weak
laws. One study (Knight, 2011) takes advantage of this cross-state variation in gun
control laws to determine its impact on criminal gun possession.
There are several ways in which state gun control laws can augment the federal laws.
Although the laws are similar, state intervention adds additional enforcement resources
to federal intervention, but not all states have the same enforcement zeal. For example,
there is state enforcement variation across the following ten gun control regulations: (1)
prosecution of “straw purchasers,” that is, individuals who purchase guns for someone
else; (2) prosecution of those who falsify information when purchasing a gun; (3) pro-
secution of dealers who fail to conduct a background check; (4) gun show regulations
to prevent casual sellers of firearms; (5) requirement of permits to purchase a gun; (6)
restrictions on concealed weapons permits; (7) restrictions on who can purchase guns
based on past misdemeanor crimes; (8) reporting of lost or stolen guns; (9) allowing
individual municipalities, cities, and counties discretion over local gun control laws;
and (10) gun dealer inspections.
In terms of how many of these regulations are enforced, there is a tremendous
amount of variation across the states. The study uses a data set that includes all 48
continental states, as well as Washington, D.C., with 17 states enforcing five or more of
these regulations, and 32 states enforcing four or fewer. The two strictest states, New
Jersey and New York, enforce all ten regulations. On the other hand, Idaho, Texas,
West Virginia, and eight other states enforce none. Of main interest to this study is how
one state’s regulatory stance may be affected by neighboring states’ different stances.
For example, Illinois enforces eight of the regulations, making it one of the stronger
gun control states. But Illinois borders six other states, four of which have much weaker
gun control policies—Indiana (enforcing three of the regulations), Wisconsin (enforcing
two), Missouri (enforcing one), and Kentucky (enforcing zero). Do these neighboring
states with weak gun control laws undermine the strong laws in Illinois?
To address this issue, the study takes advantage of a unique gun-tracing data set
compiled by the U.S. Bureau of Alcohol, Tobacco, Firearms and Explosives for the
year 2009. Tracing data can be used to link the state in which a gun is recovered from a
crime scene, to the state in which the gun was originally purchased. In 2009, nearly
one-third of guns used in crimes identified with these data can be traced to being pur-
chased in states other than where the guns were recovered. This represents a reasonably
substantial amount of interstate gun movement.
The study offers three main results. First, cross-state gun trafficking does respond to
the degree of state laws: guns flow from weak law states to strong law ones. Second,
cross-state trafficking is more prominent between border states than between more
distant states, likely due to increased transportation costs the further away is the state
of potential purchase. Finally, criminal possession rates tend to be higher in states
exposed to weak gun laws in nearby other states.
From a policy perspective, the implications of these results suggest a regulatory
concern that exists for a wide variety of public policy issues—the tension between fed-
eral regulatory (centralized) controls versus individual state (decentralized) controls. In
the context of this study, if (and this is an important if) the social goal is to maintain
strong gun control laws within a decentralized system, the analogy that applies here is
that a chain is only as strong as its weakest link. That is, to the extent that guns can
flow across state borders, weak regulatory states undermine stronger regulatory states.
And while the apparent solution to this problem is to allow for more centralized con-
trol and consistent strong regulatory policy across all states, this leads to a difficult
social welfare question: how do we value state autonomy, especially in terms of main-
taining social policy that appeals to a regional constituency? This will always be a dif-
ficult issue to resolve, regardless of the results of well-executed empirical studies.
In addition to the problems associated with gun trafficking across state lines, there is
a similar international problem with weapon trafficking between neighboring countries.
In 2004, the U.S. Federal Assault Weapons Ban (F.A.W.B.) expired and was not
renewed. This allowed gun manufacturers to, once again, produce and sell military-
style firearms in the U.S. Furthermore, because the expiration of the F.A.W.B. was
clearly anticipated, gun manufacturers were prepared to supply the previously banned
weapons soon after the ban was lifted. With a sudden increase in the availability of
assault weapons in the U.S., one study (Dube, Dube, and Garcia-Ponce, 2013) exam-
ines how this policy change impacts criminal behavior in the neighboring country of
Mexico.
The study takes advantage of different state laws with respect to assault weapons.
When the federal ban was lifted, this made it easier to obtain assault weapons in Ari-
zona, New Mexico, and Texas, but not so in California, where a state-level assault
weapons ban was still maintained. As all three of these states border Mexico, the study
examines homicide rates in Mexican towns that are close to each of these states. The
hypothesis is that Mexican towns bordering Arizona, New Mexico, and Texas will face
higher homicide rates than towns bordering California, as international assault weap-
ons trafficking from the latter state is likely to be less prevalent due to the stricter law
there. And this is precisely what the study finds. In the immediate period following the
lifting of the F.A.W.B., in Mexican areas close to Arizona, New Mexico, and Texas,
but not California, there was a substantial increase in the homicide rate (with
homicides increasing by 60 percent) in Mexican municipalities within 100 miles of the
U.S. border states, compared to Mexican municipalities further than 100 miles away.
This result further emphasizes the complicated nature of designing gun control policy
not only on a domestic level, but on an international level when different countries,
especially countries that border each other, have different policies.
Another concern of gun control advocates has to do with controlling what is known as
the “gun show loophole.” In the U.S., thousands of gun shows are held every year across
the nation. The shows are typically open to the public, a small admission fee is often
required to attend, and they draw somewhere between 2,500 and 5,000 people per show.
Vendors pay a modest fee to rent a table at one of these shows, and the number of ven-
dors can vary from as few as 50 to as many as 2,000 per show. Although these shows are
common and well attended from both the buyer and seller sides of the market, only a
small percentage of the total number of guns purchased per year are acquired at these
shows. For example, in 1993 and 1994, less than 5 percent of the total number of hand-
guns and long guns purchased per year were purchased at gun shows. In absolute terms,
this represented a total of approximately 240,000 guns (see Duggan, Hjalmarsson, and
Jacob, 2011).
Certain individuals are prohibited from purchasing or possessing a firearm under
federal law, such as those who have a prior felony conviction, are underage, have a
restraining order against them, and a few other conditions. Federal law requires
licensed firearm dealers to conduct background checks on nonlicensed individuals
seeking to obtain firearms, but no such checks are required by those who “transfer”
firearms and are not classified as being engaged in the firearms business. The gun show
loophole refers to this group of nonlicensed vendors who can legally sell firearms at gun
shows without being required to perform any background checks. This may make it
easy for individuals prohibited from purchasing firearms from licensed vendors to
acquire firearms either directly at gun shows, or indirectly through “straw” purchases at
gun shows (that is, individuals purchasing guns for someone else).
One study (Duggan, Hjalmarsson, and Jacob, 2011) examines how gun shows may
affect the homicide and suicide rates using four specific mortality measures: gun-related
homicides, nongun-related homicides, gun-related suicides, and nongun-related sui-
cides. To the extent that these shows facilitate the purchasing of guns, especially by
criminals who may not be able to pass a background test, it is commonly believed that
gun shows ultimately lead to an increase in the crime rate. Furthermore, if the suicide
rate is linked to the ease of acquiring guns, that rate too may increase. On the other
hand, if gun shows only account for a small percentage of gun purchases, and if it is
not difficult for criminals to acquire guns through other avenues, gun shows may not
have much of an impact on crime rates and/or suicide rates.
The study chooses to focus on gun shows in two states—California and Texas—
during the years 1994 to 2004. As these two states are the two largest by population,
they also rank very high in terms of number of gun shows, number of gun purchase
background checks, and number of gun deaths. And, perhaps most importantly for the
purposes of this study, the two states have very different gun show regulatory policies.
As discussed above, state gun regulations vary widely across states. California has strict
gun show regulations to eliminate the loophole. Background checks are required for all
firearms purchased at gun shows, and individuals must wait ten days before receiving
their guns. Texas, on the other hand, has no specific gun show regulations, allowing
buyers to take advantage of the loophole.
The study can track the date and location of every gun show in California and Texas,
as well as the date, location, and cause of every death that occurred in those two states
during the decade-long sample period 1994–2004. Of the deaths that can be attributed
to homicides and suicides, approximately 60 percent of those deaths involved the use of
a firearm. Does the number of homicides and suicides change in the weeks immediately
following a gun show? Using a four-week window following each gun show, and up to
a 25-mile radius from the location of each gun show, the study finds no evidence that
gun shows affect the gun-related or nongun-related homicide or suicide rates. Further-
more, there is no evidence that gun show regulation (or the absence of regulation)
affects the four mortality measures, at least not within four weeks or within a 25-mile
radius of each show.
Another avenue for gun control policy deals with safe-storage laws. Many states have
adopted these laws that require gun owners to safely secure their guns within their
homes. The most obvious benefit of these laws is that they can make it more difficult
for children to gain access to guns, which in turn can reduce the incidence of juvenile
violence, accidental shootings, and suicides. On the other hand, if safe storage reduces
quick access to guns in the face of crime, this may dampen the potential deterrence
effect of gun ownership.
One study (Lott and Whitley, 2001) find that safe-storage laws have little impact on
accidental gun deaths or suicide rates, but have a large effect on increasing property
and violent crimes. The study claims that during the five years after 15 states passed
safe-storage laws, an annual average of 309 more murders, 3,860 more rapes, 24,650
more robberies, and 25,000 more aggravated assaults took place in these states.
Another study (Cook and Ludwig, 2002), however, points to a downside of not
requiring safe storage. The study finds that a 10 percent increase in gun ownership
leads to a 3 to 7 percent increase in burglary rates as guns are an attractive item for
criminals to steal, and then possibly use to commit further crimes. Safe-storage laws,
then, may alleviate this particular problem.
In considering juvenile access to guns, as with adults, two basic effects can be iden-
tified. On the one hand, easy access to guns may increase the juvenile crime rate to the
extent that guns facilitate criminal activity. On the other hand, easy access to guns may
allow juveniles to better protect themselves against aggressors. One study (Mocan and
Tekin, 2006) takes advantage of an extremely rich survey data set from juveniles who
are asked about the availability of guns at home, as well as numerous other variables
such as race, gender, age, height, weight, perceived IQ, parents’ educational back-
ground, the availability of drugs and alcohol at home, religious background, and even
the juvenile’s degree of freedom at home (such as choosing own friends, amount of
television watched, and deciding own curfew). The study finds that gun availability at
home leads to an increase in juvenile crime (including robbery, burglary, theft, and
property damage), but does not reduce the probability of being a juvenile victim of
crime. Thus, the enhanced crime effect of easy access to guns at home outweighs the
self-protection effect, at least in this particular study.
Gun buybacks and mass shootings

Another gun control policy that has been used by the authorities is a gun buyback
program. With buybacks, the authorities purchase guns from citizens who voluntarily
turn them in. The obvious main goal of such a policy is to reduce the stock of guns
and, as a result, hopefully reduce the amount of violent crime associated with gun use.
Whether this goal of gun buybacks is realized, however, is an empirical issue. One
study (Reuter and Mouzos, 2003) examines the effectiveness of a gun buyback program
implemented in Australia during the late 1990s.
In April, 1996, a lone gunman killed 35 people in Port Arthur, Tasmania. In
response to this tragic mass killing, the Australian federal and state governments
rapidly initiated a number of new gun control policies. In order to own a firearm, an
individual would be required to demonstrate a legitimate purpose and fitness of char-
acter, undertake safety training, and conform to safe-storage requirements. Further-
more, certain classes of weapons were prohibited, such as self-loading rifles and
shotguns. Finally, to promote the new controls, a large-scale gun buyback program was
initiated. The buybacks were primarily for newly prohibited guns (especially long
arms), but there was also an amnesty (but no money) for individuals who handed in
unlicensed firearms. The buybacks focused on long arms for two main reasons: they
were the common weapon of choice in mass killings; and handguns were already
deemed to be tightly regulated.
By one measure—the number of guns turned in—the buyback program was deemed
highly successful. Although these numbers are rough approximations, the stock of fire-
arms (prohibited and not prohibited) in Australia in 1996 was 3.2 million, and 650,000
(approximately 20 percent) were turned in. Of the prohibited guns only, some estimates
suggest that as much as 70 percent of that class of firearms were turned in. For the goal
of reducing the stock of firearms in Australia, then, the buyback program was effective.
But what about the goal of reducing the amount of crime associated with gun use?
The study finds little evidence that the buyback program on its own reduced the crime
rate. This is not a surprising result given that the type of firearms targeted by the program
was typically not the weapon of choice for most types of violent crime. The buyback
program primarily focused on low-risk (with respect to crime) weapons such as long
arms, as opposed to high-risk weapons such as handguns. On the other hand, the study
does suggest that because there were no other mass killings with a firearm in a five-year
period after the Port Author tragedy, it is possible (but far from certain) that the new gun
control policies reduced the incidence of the type of crime that motivated the new policies
in the first place.
Finally, a brief mention can be made about the costs of the Australian buyback
program. The average buyback price paid per gun was approximately $500 (Australian
dollars). Total expenditures for buybacks, then, slightly exceeded $320 million, with
financing for this program provided by a 0.2 percent additional levy on national health
insurance. In addition to these payments transferred from the authorities to the gun
owners, the state needed to incur promotional and other administrative costs to enact
the program. These costs make it important to carefully consider the benefits of the
program not only in terms of reducing the stock of guns, but in discouraging crime.
A second study (Lee and Suardi, 2010) provides further evidence of the program’s
possible ineffectiveness at reducing crime rates. Focusing on gun-related deaths, the
study does not find evidence that the Australian buyback program reduced gun-related
deaths either through homicide or suicide. Furthermore, the study examines a possible
displacement effect of the program. If the program was able to reduce access to guns,
with no apparent change in gun-related deaths, it could be because individuals inclined
to commit murder or suicide simply use other means. The study finds no evidence of
the displacement effect, and so the buyback program’s apparent ineffectiveness in
reducing gun-related deaths may be a shortcoming of the program in and of itself.
In the Australian case, the Port Arthur mass shooting motivated substantial changes
in gun control policy. The same is being seen in New Zealand in response to the
Christchurch mosque mass shooting that took place in March 2019, with tougher gun
control laws being implemented within a month of the incident. The research discussed
above, however, does not examine the impact of the policy specifically on mass shoot-
ings, simply because mass shooting incidents are rare in Australia. Instead, the research
focuses on the effect of the policy on gun-related crime in general.
In the U.S., in recent years mass shootings have been occurring with more frequency
(eight in 2008; 17 in 2013; and 30 in 2017; source: FBI website). Still, it is not clear that
there are enough incidents to generate the type of data sets that can yield strong and
robust empirical results. One clever study (Luca, Malhotra, and Poliquin, 2016)
attempts to avoid the complications involved in trying to explain mass shootings by
turning the question completely around. Instead of addressing how gun control policy
impacts mass shootings, the study examines how mass shootings impact gun control
policy.
For the purposes of the study, mass shooting is defined as “an incident in which 4 or
more people, other than the perpetrator(s), are unlawfully killed with a firearm in a
single, continuous incident that is not related to gangs, drugs, or other criminal activ-
ity” (p. 4). While a mass shooting is, without a doubt, a tragic event, the number of
deaths associated with mass shootings are just a tiny fraction of the total number of
gun-related deaths. According to the study (using annual U.S. data from 1989 to 2014),
there is an average of approximately 30,000 gun-related deaths a year, but fewer than
100 of these (or 0.33 percent) occur in a mass shooting. Such an event generates sub-
stantial media attention, and it is this heightened exposure that brings the issue of gun
control to the immediate forefront of public policy debate. Yet is it sensible to base
public policy on extremely rare, albeit tragic, events?
It is not uncommon for highly tragic events to motivate substantial discussion, and
implementation, of public policy changes. An airplane crash, a train derailment, an act
of terrorism, and so on, can all lead to significant loss of life that may motivate policy
changes in an attempt to prevent future similar tragedies. At first blush, strictly from a
resource cost perspective, the benefits of policy changes in terms of lives saved may be
quite small as these events occur with very low probabilities. In other words, the
expected benefits (the benefits discounted by the small change in the probability of
these events occurring) may not be worth the typically substantial and certain costs of
enacting new policies. But this is not the whole story.
At times, a rare tragic event may draw attention to a potentially more common
problem. For example, perhaps a single airplane crash or train derailment indicates a
problem that could lead to other crashes or derailments. In the case of a mass shooting,
the public may be made aware of how policy changes can impact the many other gun-
related deaths, and not just those associated with a mass shooting. But even if this is
not the case, and the expected benefits of policy changes based on rare events are
small, that does not mean the public perceives the benefits to be small. For example, if
the public grossly overestimates the probability that a mass shooting can occur, they
may expect (or demand) a policy response. And this is where it gets tricky. Should the
government respond by trying to educate the public on the correct risk levels of such
events? If the public fails to understand the true risks, should the government base
policy on the true risks or on their constituents’ misperceptions? After all, politicians
may have to rely on their constituents’ perceptions to get reelected, regardless of the
accuracy of such perceptions.
Whatever the sense, or nonsense, of basing public policy on the occurrence of rare
tragic events like mass shootings, it is a fact that such events do trigger policy changes.
During the study’s 25-year sample period, across all 50 states there were a phenomenal
number of firearm bills introduced. Of the 20,409 new firearm bills that were proposed,
3,199 of them became law. The study focuses on bills that either tighten gun restrictions
or loosen them (as opposed to neutral bills that did not obviously tighten or loosen gun
restrictions), and offers three main results.
First, mass shootings lead to substantial debate and implementation of new gun
control policies. Quantitatively, the study finds that a mass shooting leads to an
approximately 15 percent increase in the number of firearm bills introduced within a
state and within a year after the incident. The more fatalities involved in the incident,
the more new bills that are introduced. This result does not depend on the political
party that controls the state legislature. Second, mass shootings have a relatively much
larger impact on new firearm bills than do other gun-related homicides. The study finds
that a gun-related death in a mass shooting has an approximately 80 times greater
impact on the number of bills introduced than does a gun-related death not from a
mass shooting. Finally, how a mass shooting impacts gun control policy depends on
the political party in control of the state legislature at the time. If controlled by the
Republican Party, there is a significant increase in the number of bills that loosen gun
restrictions. If controlled by the Democratic Party, there is no significant difference
between bills that loosen or tighten gun restrictions.
As difficult as it is to evaluate public policy at the best of times, it is interesting to
note that an incident like a mass shooting can lead to (at least) two very different
potential solutions. Some would argue that to counter mass shootings, a better-armed
public would be useful. This suggests the loosening of gun restrictions. Others would
suggest that making it more difficult for potential mass shooters to acquire weapons
would be useful. This suggests a tightening of gun restrictions. This is yet another
example of how contentious public policy can be, as we have seen with numerous other
crime-related issues. Still, understanding the motivation behind policy changes can be
useful, as argued in the study’s conclusion:
Our findings suggest that while much attention has been rightfully devoted to
understanding the impact of policy, there is a lot to be learned from exploring the
determinants of policy change as well. We find that even random and infrequent
events that account for a relatively small portion of total societal harm in a domain
might nonetheless be crucial levers for policy consideration and change. This does
not imply that politicians and policy makers are over-reacting; it may be that on
issues where there is usually political deadlock, salient events create opportunities
for change that has been sought all along. Whether these changes reflect appropriate
responses to the problem remains an open question.
(Luca, Malhotra, and Poliquin, 2016, pp. 16–17)
Whether gun control laws have an effect on increasing or decreasing the crime rate is
obviously an important public policy issue, and from the studies discussed above, an
issue that is unlikely ever to be easily resolved (a common conclusion for most of the
issues presented in this book). To further complicate the matter, there is a fundamental
issue that may often be overlooked in the gun control debate. Guns are just like any
other consumer product—they are purchased because they are valued by consumers.
And make no mistake, with nearly as many guns in the U.S. as there are people, this
value (or technically, the net value which is made up of the willingness to pay minus the
price of the gun) is going to be extremely large. If society cares about this value from a
social welfare perspective, any gun control policy that restricts the ownership of guns
will involve the cost of lost value to gun owners.
Along the same lines, because gun ownership is so widespread, there is the political
aspect of implementing gun control policy to consider as well. Politicians generally
have to be concerned with what their constituents care about. It may be that those who
object to gun control laws may have more influence in swaying public policy, relative to
those who favor gun control. For example, in Brazil in 2004, tough new gun control
laws were enacted. Such controls included stricter penalties for unregistered gun own-
ership, tighter control of gun ownership eligibility, and raising the legal age of gun
ownership from 21 to 25. Furthermore, the government allowed for a national refer-
endum (the first of its kind in the world) that allowed citizens to decide on an outright
ban on the sale of guns and ammunition (BBC News Americas, July 2, 2004). Brazi-
lians voted by a proportion of two to one to reject the outright ban.
Crime as a disease
Recently, economists have turned their attention to studying infectious diseases. This
field of inquiry is known as economic epidemiology. In a medical dictionary, epide-
miology is typically defined as the study of populations in order to determine the fre-
quency and distribution of disease, and to measure risks. For example, assume an
infectious disease is spreading across the country. At any point in time, the population
can be divided into two groups—those who have contracted the disease, and those who
haven’t. With this limited information, a simple epidemiological prediction can be
made: the larger the fraction of infected people in the population, the larger the frac-
tion of uninfected people who become infected in the future. Quite simply, the more
people who have the disease, the faster it will spread to the uninfected. This prediction
often justifies rapid public intervention in fighting infectious diseases.
To an economist, however, the simple prediction may be incomplete. It may be the
case that the opposite occurs: the larger the fraction of infected people in the popula-
tion, the smaller the fraction of uninfected people who become infected in the future.
This is because individuals who have not yet been infected will have the incentive to
take private precautions to prevent future infection, and the incentive to take these
precautions will be stronger the larger the fraction of infected people in the population.
For example, consider a highly infectious disease such as AIDS. There may very well
be a sound role for social intervention to prevent the spread of AIDS, possibly through
education, the subsidization of blood tests, the subsidization of condoms, and so on.
Yet private individuals will also take precautions to prevent the spread of the disease.
An individual may reduce their number of sexual contacts, be more careful in screening
potential partners, or use condoms. As the disease spreads, it is likely to be more highly
publicized, which in turn may lead to increased private precautions, which in turn will
curtail the spread of the disease. Thus, to the extent that private individuals take pre-
cautions, the spread of the disease may be self-limiting even without social intervention.
So what does all this have to do with rational crime analysis? Although crime does
not spread throughout the population in the same way an infectious disease does, these
two social issues share one common policy objective: how can resources be used to
curtail their spread? In thinking of crime as a disease, the important policy concern
involves the tension between using public or private resources in fighting its spread.
Just as with an infectious disease, as the crime rate increases it is likely that private
individuals will take more precautions to deter crime. Conversely, as the crime rate
decreases, individuals will take fewer precautions to deter crime.
If the crime rate is affected by public expenditure on crime deterrence, then there will
be a link between public and private expenditure. If the authorities devote more
resources to fighting crime, the crime rate will be reduced. But this reduction in the
crime rate will lead private individuals to devote fewer resources to crime deterrence,
and this will lead to an increase in the crime rate. Thus, the original social goal of
reducing the crime rate may be somewhat thwarted by its effect (through the reduced
crime rate) on private crime deterrence. It works the other way around also. If the
authorities devote fewer resources to fighting crime, the crime rate will increase. This
will lead private individuals to devote more resources to deterring crime, thus reducing
the crime rate.
Note that public and private expenditures on crime are not directly linked, but
instead are indirectly linked through the crime rate. One study (Philipson and Posner,
1996) attempts to examine this indirect link. The study finds that as the burglary crime
rate increases, there is a significant increase in the demand for burglar alarm systems—
for every 100 burglaries per 100,000 population, there is a 3 percent increase in demand
for alarm systems. They also find that when the burglary crime rate is held constant,
there is no significant direct relationship between public expenditure and the demand
for alarm systems.
The important policy implication of this indirect link is that private and public
expenditures on crime deterrence may be working at cross-purposes. This provides a
further explanation as to why it is very difficult to completely eradicate crime (just as
it is difficult to completely eradicate disease): if public expenditures are used to
greatly reduce the crime rate, private precautions will slack off, causing the reduction
in the crime rate to be self-limiting. Sound social policy, then, requires a careful
consideration of the substitutability of public and private crime deterrence measures.
It is possible that fewer public resources can be devoted to deterring crime in cases
where ample private measures are being used. But this leads to a couple of other
concerns.
First, as discussed earlier, is that private individuals are largely concerned with pri-
vate objectives, not social ones. Government policy to deter crime is more likely to be
concerned with aggregate crime rates, whereas individuals want to protect themselves
from being victims of crime. This could lead to the problem of crime deterrence versus
crime displacement—private expenditure may displace crime as opposed to deterring it.
Second, it may not always be the case that public and private expenditures are at cross-
purposes. Recall the Lojack case. While it was an individual’s private decision to have a
Lojack device installed in a car, it was the authorities that had the manpower, the
equipment, and the technical know-how to use the device to track down car thieves.
Private and public expenditures, then, may complement each other, further adding to
the complexity of considering how best to use resources to deter crime.
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8 The war on drugs
Illicit drug use is quite common in the U.S. In 2016, 103.5 million Americans age 12
and older reported illicit drug use at least once in their lifetime, 48.5 million reported
drug use within the last year, and 28.5 million reported drug use within the last month
(Substance Abuse and Mental Health Administration). Of high school seniors in 2013,
in the previous year 36.4 percent smoked marijuana, 2.6 percent used cocaine, and 3.6
percent used oxycontin (National Institute of Drug Use, 2013 Report). Finally, in 2013,
22 percent of all students grades 9 through 12 reported someone had offered, sold, or
given them an illegal drug while on school property (Centers for Disease Control and
Prevention).
Despite this pervasiveness of drug use, not only in the U.S. but throughout the
world, there is a strange dichotomy that exists when discussing social policy directed
toward controlling illicit drugs. On the one hand, the authorities devote a substantial
amount of resources to fight (what is commonly known as) the war on drugs. For
example, a 2011 study by the U.S. Department of Justice estimates the annual cost to
the criminal justice system of fighting this war to be $56 billion (2011 National Drug
Threat Assessment, U.S. Department of Justice National Drug Intelligence Center). On
the other hand, a substantial number of scholars and laypeople argue in favor of drug
legalization, or at least against devoting so many resources to what is often considered
an impossible war to win.
While fighting any crime is a serious public policy concern, the main justification for
fighting property and violent crime is that criminals hurt others. Drug use, however, is
routinely thought of, at least in part, as a victimless crime, a description that is never
applied to crimes like theft, rape, and murder. So the debate is not simply about how
many resources we should devote to the war on drugs, but whether we should fight the
war at all. A good place to start a discussion of the war on drugs, then, is to offer some
justifications for raging the war in the first place.
There is no doubt that drug use has the potential to impose substantial costs on others.
Some of these costs are related to traditional areas of crime. For example, it is a common
belief that many drug users support their habits by committing property crimes. Fur-
thermore, drug use can be related to violent crime in a number of ways. Drug use may
encourage violent crimes for financial gain, or it may have a pharmacological effect that
increases the propensity for users to become more violent in general. Also, as the drug
market is an underground illicit market, drug suppliers may have to resort to violence to
settle business disputes and to expand their operations. But there are a number of other
external costs that can be associated with drug use.
The war on drugs 101
Drug use may lower the productivity of workers. If the detrimental physical and
psychological effects of drug use make workers less productive, either while they are at
work or because they are frequently absent from work, there may be spillover effects
that impact not only individual firms, but the economy as a whole. Also, to the extent
that drug use is incapacitating, this could lead to increased loss of jobs and, therefore,
higher unemployment rates. If drug users suffer frequent serious health problems, they
may impose costs upon the health-care system that are borne by others through private
and public health insurance pools. And, of course, to the extent that drug users operate
vehicles while under the influence, this could create substantial accident costs. In con-
sidering all of these costs, the U.S. Department of Justice, in the study cited above,
finds the following:
The trafficking and abuse of illicit drugs in the United States create an enormous
drain on the economic, physical, and social health of American society. In 2007
alone, the estimated cost of illicit drug use to society was $193 billion, including
direct and indirect public costs related to crime, health, and productivity, with the
majority of costs attributable to lost productivity.
(2011 National Drug Threat Assessment, p. 4)
Many of these types of costs, however, are not only associated with drug use. For
example, all of the costs identified in the previous paragraph can be attributed to
alcohol abuse. Yet alcohol (other than in “dry” counties) is a legally sold product.
Perhaps what separates drug abuse from alcohol abuse is the degree of user risk asso-
ciated with each product. Certain drugs, especially “hard” ones, can be highly debili-
tating and dangerous to the user. And if drugs are highly addictive relative to other
indulgences, drug control policy can be justified not only in terms of protecting others
from drug users, but by protecting drug users from themselves. Alcohol use may surely
be addictive, but drug use is typically considered to be synonymous with the term
addiction. Thus, the war on drugs is often presented as a war on addiction. From a
policy perspective, then, not only in terms of justifying drug control policy, but in
terms of evaluating its effectiveness in reducing drug use, the concept of addiction
needs to be thoroughly examined.
Addiction and drug control

The primary goal of drug policy is to reduce the consumption of drugs. A common way
to achieve this goal is to enforce supply-side controls that make it more costly for drug
producers to produce and distribute their product. Such controls may involve increases
in the expected punishment drug producers face, either by devoting more resources to
apprehension and conviction, or by enhancing the severity of punishment. The autho-
rities can also “choke” the supply of drugs by destroying drug crops before they are
harvested, or by seizing drugs somewhere along the line of distribution before they reach
the final consumer. The ultimate goal of these supply-side controls is to raise the final
price of drugs that users must bear, thus reducing consumption.
The problem with supply-side controls is that for them to be effective, drug users
must respond in predictable ways to changes in price according to the basic law of
demand—as price goes up consumption goes down, and as price goes down con-
sumption goes up. While this may make sense for casual users of illicit drugs, drug
102 The war on drugs
policy is largely concerned with controlling the behavior of drug addicts. What is drug
addiction? The National Institute on Drug Abuse (N.I.D.A., a branch of the National
Institutes of Health), defines and describes addiction this way:
Addiction is defined as a chronic, relapsing disorder characterized by compulsive

drug seeking and use despite adverse consequences. It is considered a brain dis-
order, because it involves functional changes to brain circuits involved in reward,
stress, and self-control, and those changes may last a long time after a person has
stopped taking drugs . . . The initial decision to take drugs is typically voluntary.
But with continued use, a person’s ability to exert self-control can become seriously
impaired; this impairment in self-control is the hallmark of addiction.
(“Drugs, Brains, and Behavior: The Science of Addiction,” N.I.D.A. website)
Based on this definition and description of addiction, it is not uncommon to think of

drug users as being “trapped” by their addiction, and this represents one of the para-
doxes of supply-side controls. On the one hand, a strong justification usually given for
the controls is that drug addiction imposes tremendous costs on society, not only on
the drug user, but also on others. On the other hand, if drug users behave as addicts,
they are not expected to respond much to changes in the price of drugs. This suggests
that supply-side controls may be ineffective at reducing the consumption of drugs, even
when they lead to higher drug prices. Thus, two questions must be resolved empirically:
do drug users respond to an increase in drug prices by reducing their consumption of
drugs; and, do supply-side controls effectively increase the price of drugs?
To answer the first of these questions, it is important to introduce an economic
model of addiction. The typical definition of “addiction” often defines such behavior as
harmful, as in the N.I.D.A. definition that includes “drug seeking and use despite
adverse consequences.” Thus, this definition is qualitative in nature—it defines addic-
tion to be bad. From a rational crime perspective, this definition is problematic as we
would have to account for why individuals would purposely do something harmful to
themselves. Is it because the individual doesn’t truly understand the harm that drug use
can cause? Or is there another explanation that fits into the rational model framework,
such as the individual weighs the costs and benefits of drug use, and chooses to con-
sume drugs if the benefits outweigh the costs? In other words, do drug addicts behave
rationally?
The theory of rational addiction (Becker and Murphy, 1988) offers a unique
approach to modeling addictive behavior. While it is fairly common to believe that
addictive behavior involves irrationality on the part of the drug user, the concept of
rational addiction is actually quite intuitively pleasing. A rational addict’s choice to
consume a product today depends primarily on two things: how much of the product
was consumed in the past, and how much of the product will be consumed in the
future. In other words, the core principle behind rational addiction is that a product is
addictive if there is an intertemporal link in consumption over time.
For example, let’s say you are a smoker who smokes five cigarettes a day. All of a
sudden, you confront a very stressful situation that you respond to by increasing your
smoking to ten cigarettes a day. It doesn’t take you long to put the stressful event
behind you, but you find that you do not return to smoking five cigarettes a day—you
smoke more. As another example, assume the government announces that next year,
they will increase cigarette taxes by 100 percent. As a rational addict, you anticipate
that you will reduce your future consumption of cigarettes because of the price
increase, and this leads you to reduce your current consumption as well.
These examples illustrate that in a model of rational addiction, past, current, and
future consumption all complement each other. An increase in current consumption
increases future consumption, and an expected increase in future consumption increa-
ses current consumption. Describing addictive behavior in this way offers several
advantages (for the purposes of economic analysis) over the description above. First,
this description is not qualitative—it is not harmful behavior that is being identified,
only consumption behavior. Second, this is a very general description—any product
(from eating fruit, to exercising, to smoking methamphetamine) can be considered
addictive as long as there is an intertemporal link in consumption. Third, rational
addicts are thought of as making informed decisions that involve trade-offs between
current well-being and future well-being. Drug addicts may very well be sacrificing
their future health for immediate gratification, but it is a choice based on some com-
parison of the costs and benefits of drug use.
Finally, and most importantly for our purpose here, rational addicts can adjust their
consumption levels based on current and future changes in their environment. The belief
that drug users are “trapped” by their addiction and must consume a certain amount of
the product no matter what, does not fit well with the theory of rational addiction. Drug
users can respond to changes in the price of drugs, to their income levels, to the costs of
quitting, and to changes in information concerning their drug use. It is because of this
that supply-side controls that increase the price of drugs can be effective in reducing the
consumption of drugs. To determine exactly how effective, we must be able to account
for how sensitive consumption is to price changes. To an economist, this means we have
to consider the elasticity of demand for various drugs.
The elasticity of demand directly measures the sensitivity of consumption to price. For
example, assume that a drug’s price increases by 5 percent. Due to this price increase, we
expect to observe a reduction in consumption. Will this reduction in consumption be
greater than, or less than, 5 percent? (The reduction may also be exactly 5 percent, but
we can ignore that possibility.) If the reduction in consumption is greater than 5 percent,
we say that the demand for the drug is elastic (that is, the consumption effect is large
relative to the price effect). If the reduction in consumption is less than 5 percent, we say
that the demand for the drug is inelastic (that is, the consumption effect is small relative
to the price effect).
To further elaborate, if price increases by 5 percent, assume that consumption falls by
10 percent. This means that the consumption effect is twice the price effect, or the elas-
ticity of demand is -2.0. (The minus sign represents the inverse relationship between price
and consumption.) If, instead, the 5 percent increase in price leads to a 2.5 percent
reduction in consumption, the consumption effect is half the price effect, or the elasticity
of demand is -0.5. When the elasticity of demand is less than -1.0 (such as -2.0), the
demand is elastic. When the elasticity of demand is between -1.0 and 0 (such as -0.5), the
demand is inelastic. Controlling drug use through supply-side controls will be easier to
do if the demand for drugs is elastic, as this implies that small price increases will lead to
relatively large reductions in consumption. So, what are the elasticities of demand for
some common illicit drugs?
From an intuitive perspective based on common perceptions of addictive behavior,
we don’t expect drug use to be very responsive to price changes, that is, we expect the
demand for drugs to be inelastic. But as we have seen time and again throughout this
book, empirical evidence often challenges common perceptions. It is no different in this
case. While it is difficult to achieve a high degree of precision in estimating elasticities
for legal goods, it can be extremely challenging to do so for illegal goods. By their
nature, illicit drugs are sold in underground markets, making price data difficult to
collect. There are also numerous statistical methodological issues to deal with. Never-
theless, elasticity ranges do exist for several commonly used drugs.
One survey study (MacDonald, 2004) provides some examples of elasticity ranges.
For heroin, the elasticity estimates range from -0.27 to -1.50; for cocaine the range is
-0.50 to -2.50; and, for marijuana the range is -0.36 to -1.51. These ranges immediately
demonstrate how difficult it can be to rely on empirical evidence to advise public policy.
Depending on the study referenced, supply-side controls that lead to higher drug prices
may or may not lead to significant reductions in consumption. However, one conclu-
sion can be reached—even at the low end of the elasticity ranges, drug consumption is
at least somewhat affected by price.
But there is more to the story than simply demonstrating that price increases reduce
drug consumption. Knowing if the elasticity of demand is elastic or inelastic has other
implications for the effectiveness of supply-side controls. While it may be an advantage
from a policy perspective to reduce consumption, there is also the issue of how an
increase in price will affect drug user spending. A common misperception is that a price
increase for a product must lead to an increase in consumer expenditure (or firm rev-
enue) for that product. This is not necessarily the case. How price impacts expenditure
depends on the elasticity of demand.
For example, assume the elasticity of demand for a drug is -0.50. If the price were to
increase by 10 percent, this means that consumption would fall by only 5 percent. With
the increased price effect being larger than the reduced quantity effect, the expenditure
on the good (that is, price multiplied by quantity) must increase. But for an elastic
demand, say -2.00, the same 10 percent increase in price leads to a 20 percent reduction
in consumption, and so the reduced quantity effect outweighs the increased price effect
and expenditure must decrease. Why does it matter what happens to consumer spend-
ing as long as the consumption of drugs is reduced? More spending on illicit drugs may
create other social problems.
One possible social cost of drug addiction is that users may support their habit by
resorting to committing property crimes. If supply-side controls reduce drug use but
enhance property crime, this presents a (potentially) serious shortcoming to such con-
trols. But as one study points out (Benson, Kim, Rasmussen, and Zuehlke, 1992), we
must be careful to distinguish between correlation and causation in this setting. The
fact that a majority of criminals who commit property crimes are also drug users does
not suggest that it is drug use that causes property crime. Criminals who commit
property crimes may simply have a preference for illicit drugs, with their drug habit not
in and of itself leading to increased property crime. While the study does find a link
between drug use and property crime, it concludes that only approximately 20 percent
of the population of drug users commit a substantial amount of property crime. Of
course, this may be a large enough number to suggest that the link between drugs and
property crime is worth considering when enacting supply-side controls.
On the other hand, the study argues that it may be drug enforcement policy that
leads to increased property crime. As the authorities devote more resources to com-
batting drug crimes, there are fewer resources available to combatting property crimes.
We previously have seen this argument in Chapter 3 when considering “speed traps”
that are set up to generate revenue for the police, at the expense of reduced deterrence
of other crimes. The study concludes that if there are drug users who resort to property
crimes to support their habit, perhaps the authorities can kill two birds with one stone
by devoting more resources to deterring property crime. Not only will this directly
reduce property crimes, but it may make it more difficult for some drug users to sup-
port their habit, thus reducing the consumption of drugs as well.
The link between drug use and property crime is examined in another study (Entorf
and Winker, 2008). Using data from West Germany during the years 1976–1995, the
study finds that there is a small but statistically significant link between drug use and
property crime, with increased drug use leading to increased property crime. The study
is skeptical that it is likely to be more effective for the authorities to directly combat
property crime than it is to devote resources to directly reducing drug use: “Given the
lack of unambiguous cost-benefit results… programs aiming at reducing economic-
related and pharmacologically induced crimes as a consequence of drug abuse remain
important tools of public policy” (p. 20).
In addition to supply-side controls, the authorities may pursue drug enforcement
policies through the demand side of the market. Demand-side policies include increas-
ing the expected punishment to drug users through changes in the certainty or severity
of punishment, encouraging or subsidizing treatment for users, providing information
about the harmful effects of drug use, and so on. As with supply side-controls, the
effectiveness of these policies relies, at least somewhat, on drug users being rational
addicts. Recall that an implication of the rational addiction model is that addicts do
consider new information in their cost–benefit analyses, and respond accordingly. Thus,
advertising campaigns designed to reduce the demand for drug use would be highly
ineffective if drug users, on average, simply did not respond to the ads by reducing
consumption. So once again, it is the existence of “rational” addicts that may allow for
demand-side controls to be effective.
While supply-side controls attempt to reduce drug consumption by increasing drug
prices, demand-side controls attempt to reduce drug consumption by reducing demand
at every price. What this means is that, whatever amount of a drug an individual would
consume at a given price before any control policies are in effect, after the control takes
hold the individual will reduce consumption even if the price doesn’t change. In gen-
eral, though, by reducing drug users’ willingness to pay for drugs, demand-side policies
typically reduce the price of drugs.
In all, effective supply-side and demand-side policies are both predicted to reduce the
consumption of drugs. As for their effect on price, supply-side controls are predicted to
increase price, and demand-side controls are predicted to reduce price. It is important, then,
from an empirical analysis perspective, to recognize that both types of control are simulta-
neously used by the authorities. This means that, in examining the effectiveness of supply-
side controls, if a study finds that such controls are not increasing price, the researchers must
be careful to control for the confounding factor of demand-side policies. It may be that the
supply-side controls are effective, but so are the demand-side controls, which means the
study must be able to correctly attribute a price change to the appropriate controls.
Drug prohibition and violence

It is commonly argued that not only drug use but drug control policies in and of
themselves can enhance the level of violence in society. There are typically three main
ways in which drug use and drug trafficking can lead to enhanced violence (see Gold-
stein, 1985): psychopharmacological; economic compulsive; and systemic. Psycho-
pharmacological violence occurs with certain drugs that make users more aggressive
and violent. Drugs such as crack cocaine and PCP can make users more aggressive and
volatile, leading them directly to behave more violently. Economic compulsive violence
is when drug users resort to violent crimes to reap financial gain to support their habit.
With this category, it need not be the drugs themselves that are enhancing violent
behavior, but the desire to raise the funds to purchase whatever type of drugs are being
consumed.
Finally, systemic violence, arguably the most substantial category of the three, is due
to the authorities enacting a policy of drug prohibition. While the ultimate goal of
prohibition is to eliminate the drug trade, its actual effect is to drive the trade under-
ground. In doing so, producers of an illicit product cannot resort to the court system to
resolve disputes with consumers or other producers, even if the parties are willing to
cooperate and agree to explicit contractual terms governing their business relationships.
Thus, disputes associated with the production, distribution, and selling of drugs are
often resolved through violent means.
One study (Miron, 1999) attempts to provide empirical verification of systemic vio-
lence attributed to drug prohibition in the U.S. throughout most of the twentieth century.
The study builds on three premises. First, because drugs are prohibited, violence in the
drug industry serves the purpose of dispute resolution. Second, the degree of prohibition
at a point in time affects the degree of violence at that point in time. Finally, the degree of
prohibition at a point in time can be measured by the degree of enforcement expenditure
at that point in time. Thus, the study relies on a crucial distinction between prohibiting the
sale and use of a drug versus enforcing that prohibition.
Making it illegal to consume a specific drug is one thing, but enforcing the law is
something else entirely. If enforcement expenditures increase because the authorities
have to resort to more dangerous means to apprehend dangerous drug suppliers, this in
turn may lead the drug suppliers to resort to even more violence in order to avoid
apprehension. Also, if increased enforcement is effective in removing certain suppliers
from the market, other suppliers may resort to violence in competing for the now
vacant positions. Along with some more subtle reasons, simply put, the more expendi-
tures the authorities devote to prohibition, the more violence we expect to observe
associated with drug markets.
In testing this hypothesis, the study examines how the U.S. homicide rate throughout
the twentieth century was affected by the degree of enforcement of drug control laws.
To isolate the impact of the enforcement of the laws, the study is able to control for
other important factors that are expected to affect the homicide rate. These control
variables include deterrent factors such as the incarceration rate and the use of the
death penalty, demographic factors such as the age composition of the population, and
the availability of guns. The main result found is that the homicide rate is 25 to 75
percent higher than it would have been had there been no prohibition of drugs. One
must be careful to note, however, that even if drug prohibition leads to systemic vio-
lence, to the extent that prohibition reduces drug use, this can lead to a reduction in
both psychopharmacological and economic compulsive violence. Thus, there is a trade-
off between the different categories of violence associated with drug use.
One study (DeMello, 2015) attempts to sort through these different categories by
examining the crack cocaine (or crack) trade in Sao Paulo, Brazil, using data covering
the years 1985 to 2008. Sao Paulo experienced two crack “waves” during much of the
sample period. Throughout the 1990s, there was a large increase in crack trafficking
(that is, the selling of the drug) and usage, but this dissipated sharply in the late 1990s
and remained flat throughout the 2000s. Furthermore, the crack waves correlated
strongly with homicide rates in Sao Paulo, which also increased throughout the 1990s
and then declined sharply in the late 1990s.
There are several ways in which crack use and trafficking can lead to enhanced violence.
Crack is a drug that enhances aggressive behavior in users, suggesting that from the psy-
chopharmacological channel, drug use can lead to an increase in violence. It is also a
highly addictive and debilitating drug, and to the extent that this makes it more difficult
for users to maintain legitimate employment, this may enhance violence through the eco-
nomic compulsive channel. Finally, the lucrative crack market throughout the peak of the
wave attracted many suppliers into trafficking the drug, which can lead to increased
intergang confrontations and enhanced violence through the systemic channel.
The study offers two key results. First, it is drug trafficking in crack, not drug use,
that is having an impact on the homicide rate. Second, no relationship between crack
and property crime is found. Taken together, the study concludes that the link between
crack cocaine and the homicide rate in Sao Paulo during the sample period is primarily
explained by the systemic category, and offers the following concluding comment:
This result has important implications for policy. In the case of Sao Paulo, violence
is derived from illegality itself, not from mental impairment or the necessity of
sustaining habitual drug use. My results suggest that a large spike in violent crime
should not be expected after legalization, even if consumption rises; illegal posses-
sion (for consumption) is not associated with an increase in violence. In this case,
legalization becomes, ceteris paribus, a more attractive option.
(DeMello, 2015, p. 183)
The case for legalization?

It is not uncommon for economic studies on illicit drugs to offer a similar conclusion to
the one above—drug legalization may be an “attractive option.” This call for legaliza-
tion usually stems from two considerations. First, to the extent that drug users are
rational and understand the nature of their consumption patterns, the benefits of drug
prohibition may be overstated. Protecting drug users from themselves is a tough sell to
many economists, especially for those who embrace the rational addiction framework.
A more easily acceptable argument is that drug use and trafficking may be associated
with substantial social costs that extend beyond the drug user.
Second, and far more important, the war on drugs is an extremely expensive one to
maintain, not only in terms of enforcement costs, but also in terms of the systemic vio-
lence discussed above. Furthermore, there is serious doubt about the war’s effectiveness
in reducing drug use and drug trafficking. On the supply side, if the authorities increase
the pressure against one specific country’s export of drugs to the U.S., there is always
another country ready to fill the gap. Destroy one crop of drugs, another crop can easily
be planted. Make it more difficult to produce one type of drug, another drug can readily
take its place. And there appears to be an endless supply of street dealers to distribute
drugs, regardless of how many are apprehended and imprisoned. On the demand side,
the probability of apprehension tends to be quite low, possibly explaining why so many
individuals at least experiment with drugs. It is difficult to find compelling evidence that
the war on drugs, in a dollar for dollar sense, is a good bang for the buck.
Legalization, it is argued, may be preferred to prohibition because of the vast
enforcement cost saving that will be realized. There will be no more need to apprehend,
convict, and punish drug-related crimes. These resources can now be put to use else-
where in the criminal justice system, or to some other use entirely. A downside to
legalization, however, is that it may increase drug use, possibly even greatly increase
drug use. To whatever extent drug use is costly either to the user or to others, legali-
zation will exacerbate these costs.
To compensate for the potential increase in drug use, proponents of legalization look
to the cigarette and alcohol markets as examples of how to legalize and control certain
products. To restrict legal drug use, control policies such as taxation, drug education,
and the encouragement or subsidization of treatment may be used. To protect minors,
age-restriction policies can be enacted and enforced. Alternatively, drugs can be made
legal through prescription only. Of course, all these policies to support legalization are
also costly to enforce.
If there appears to be a strong consensus, especially among scholars, that the war on
drugs is costly and ineffective, this leads to one simple question: why do drug control
polices continue to be implemented? One answer is that there are many people who feel
that drug use is a blight on society. Drug use is bad, period. To these people, it is worth
fighting the war on drugs even at tremendous cost. From a strict economic sense, this
may seem like a weak argument. Nevertheless, recall that social objectives are defined
subjectively. The war on drugs may be sensible from a social welfare perspective that is
not placing emphasis on the resource costs used to enforce drug control policies.
There is another, more cynical, answer as to why drug prohibition persists. As dis-
cussed in Chapter 3 concerning one of the problems of using monetary fines as a pun-
ishment, the authorities may have much to gain by the asset-seizure laws associated
with drug control policies, and these gains may distort the way they use resources to
fight crime. A lucrative seizure can provide revenue gains for enforcement agencies at
several levels. For example, in March 2005, a Pontoon Beach, Illinois, police officer
seized $3.3 million in a drug-related arrest. Of the total amount, the Pontoon Beach
police department kept $2.37 million, the Federal Drug Enforcement Agency asset
forfeiture fund kept $658,000, and the Madison County State Attorney’s Office kept
$263,555 (Bellville News-Democrat, March 16, 2006). However, in February 2019, the
U.S. Supreme Court unanimously ruled in Timbs v Indiana that such asset seizures
could be construed as excessive, and disallowed, under the 14th amendment of the
constitution which guarantees that no state shall “deprive any person of life, liberty, or
property, without due process of law.”
One study (Mast, Benson, and Rasmussen, 2000) examines the effect of asset-seizure
laws on the extent of police drug enforcement effort. They find that in jurisdictions
where police are allowed to keep a portion of the assets, there is a significant increase
in drug arrests (controlling for several other factors that affect drug enforcement effort).
More drug arrests may appear to be evidence of effective drug enforcement, but if
resources are being drawn away from other criminal deterrence efforts, the asset-seizure
laws are providing poor incentives for the authorities to consider the efficient use of
resources from a social perspective.
In the end, the debate over drug prohibition is unlikely ever to be resolved. Because
of this, some argue that a middle ground toward legalization could be sensible. Perhaps
“soft” drugs like marijuana can be legalized, but “hard” drugs like methamphetamine
can be prohibited. In fact, many countries and U.S. states have legalized the use of
marijuana for recreational purposes. This move toward legalization, however, has not
occurred for a drug like methamphetamine. To the contrary, the U.S. authorities have
pursued a highly aggressive enforcement effort against methamphetamine.
If there are net benefits to drug prohibition, the strongest case for drug enforcement
policy should be found with a drug like methamphetamine. Not only is it a widely used
drug, it is associated with substantial social costs. According to the 2012 National Survey
on Drug Use and Health, approximately 1.2 million people in the U.S. reported using
methamphetamine in the past year, and 440,000 reported using it in the past month.
Chronic use of meth can lead to substantial long-term health problems, including brain
damage, increased risk of heart attack, lung damage, serious digestive problems, liver
damage, bladder infections, and tooth decay and gum disease. These adverse health
effects not only impose direct costs on the meth user, they also impose substantial costs on
the health-care system that are incurred by taxpayers and individuals who face higher
premiums in insurance pools.
Furthermore, additional costs are incurred through the production of meth. For each
pound of meth produced, about five pounds of toxic waste is also produced. This
hazardous waste is harmful to the producers of meth, as well as their neighbors and the
environment when it is illegally dumped. Meth labs also face a risk of fire and explo-
sions, creating additional risks for those who produce the product and for those who
live in homes that are used as labs. Because of these and numerous other costs, social
policy against methamphetamine production and use can be quite aggressive.
For example, as one of its most common strategies against the production of meth,
the U.S. Drug Enforcement Agency (D.E.A.) seizes thousands of meth labs annually.
In 2014, the D.E.A. reported 9,338 enforcement “incidents” related to meth produc-
tion (including labs, dumpsites, and chemical and glassware seizures). Five years
earlier in 2009 they reported 12,851 seizures, and five years before that in 2004 they
reported 23,829 incidents. While the reduction in seizures over that period may be
due to factors such as a change in enforcement effort or to meth producers
attempting to better conceal their facilities, there may also be a significant deterrent
effect associated with the D.E.A.’s efforts. Still, despite this substantial effort,
undoubtedly thousands of meth labs remain in operation, especially as it is relatively
inexpensive to develop new ones. In fact, the D.E.A. has estimated that with about
$100 (in 2003 dollars) of materials, a meth manufacturer can produce about $1,000
worth of product in a matter of hours.
Another approach the authorities take in controlling methamphetamine production
is to try to disrupt the supply of meth precursors, such as ephedrine and pseudoephe-
drine, at the distribution level. In 1993, the Domestic Chemical Diversion Control Act
was passed which required distributors, importers, and exporters of these precursors to
register with the D.E.A. In addition, the D.E.A. had the authority to deny or revoke a
company’s registration without proof of criminal intent. This provided the D.E.A. with
the opportunity to score two phenomenal successes in seizing large quantities of the
precursors.
In May 1995, the D.E.A. seized 25 (metric) tons of ephedrine and pseudoephedrine
from a Pennsylvania-based tablet manufacturer. Later that same month, they seized
500 cases of pseudoephedrine from a mail order distributor. Together, these seizures
removed an amount of precursors that could yield nearly 30 (metric) tons of
methamphetamine. To put the size of these seizures into perspective, it is estimated that
the total methamphetamine consumption in the U.S. in 1994 was approximately 34
(metric) tons. In terms of the extent of these seizures, the D.E.A.’s enforcement effort
can be considered hugely successful. But what effect did these seizures have on dis-
rupting the market for methamphetamine?
One study (Dobkin and Nicosia, 2009) examines the impact of these two major sei-
zures on methamphetamine-related drug use, and social costs, in California in the mid-
1990s. There are two reasons why the study focuses on California: California was the
main domestic location for meth production and consumption in the mid-1990s and
there is a wealth of data available for that state. In order to avoid confusion with other
(later) precursor legislation, the study examines the effects of the two seizures during the
period January 1994 (17 months prior to the seizures) and December 1997 (31 months
after the seizures).
The first effect of these seizures the study identifies is that they had a large
impact on the price of meth, with the price increasing from $30 per gram to more
than $100 per gram during the first four months. This increase in price was due to
producers having a difficult time replenishing their stock. The second effect involves
the purity of meth, with the purity falling from 90 percent to 20 percent during the
first four months. This reduction in purity was caused by producers thinning out
the remaining stock of meth they had to work with, and because they were forced
to use inferior precursors when producing new stock. Both the price increase and
the purity reduction are predicted to have a dampening effect on the consumption
of meth, which is precisely the policy objective of the seizures. But was this objec-
tive truly met?
As methamphetamine is an illicit drug, data on meth use are difficult to come by.
Instead, as a proxy for meth use the study uses hospital admissions that include an
indication of amphetamine use. When a patient tests positive for amphetamine use,
usually due to meth, that indicates that the patient has used the drug in the past
three to five days. Thus, the number of hospital admissions that indicate ampheta-
mine use are directly related to the amount of meth consumed. The study finds that
the seizures had only a short-term impact on meth use. Both the price effect and the
purity effect largely dissipated after a few months. Furthermore, the study examines
the seizures impact on the use of other drugs, and on the property and violent crime
rates, finding no evidence of any of these other effects.
In summing up, the study offers the following conclusion:
This is quite possibly the DEA’s greatest success in disrupting the supply of a major
illicit substance… That this massive market disruption resulted in only a temporary
reduction in adverse health events and drug arrests and did not reduce property and
violent crimes is disappointing.
(Dobkin and Nicosia, 2009, p. 21)
If the D.E.A.’s “greatest success” was largely ineffective on having an adverse impact
on methamphetamine use and trafficking, what can be said about the D.E.A.’s more
modest enforcement efforts? It is precisely this type of result—where it is found that
substantial enforcement costs do not yield comparable offsetting benefits—that fuels
the critics of the war on drugs.
References
Becker, G.S. and Murphy, K.M. (1988) “A Theory of Rational Addiction,” Journal of Political
Economy, 96: 675–700.
Benson, B.L., Kim, I., Rasmussen, D.W., and Zuehlke, T.W. (1992) “Is Property Crime Caused
by Drug Use or by Drug Enforcement Policy?” Applied Economics, 24: 679–692.
DeMello, J.M.P. (2015) “Does Drug Illegality Beget Violence? Evidence from the Crack-Cocaine
Wave in Sao Paulo,” Economia, 16: 157–185.
Dobkin, C. and Nicosia, N. (2009) “The War on Drugs: Methamphetamine, Public Health, and
Crime,” American Economic Review, 99: 324–349.
Entorf, H. and Winker, P. (2008) “Investigating the Drugs-Crime Channel in Economics of
Crime Models: Empirical Evidence from Panel Data of the German States,” International
Review of Law and Economics, 28: 8–22.
Goldstein, P.J. (1985) “The Drugs/Violence Nexus: A Tripartite Conceptual Framework,” Journal
of Drug Issues, 15: 493–506.
MacDonald, Z. (2004) “What Price Drug Use: The Contribution of Economics to an Evidence-
Based Drugs Policy,” Journal of Economic Surveys, 18: 113–152.
Mast, B.D., Benson, B.L., and Rasmussen, D.W. (2000) “Entrepreneurial Police and Drug
Enforcement Policy,” Public Choice, 104: 285–308.
Miron, J.A. (1999) “Violence and the U.S. Prohibitions of Drugs and Alcohol,” American Law
and Economics Review, 1: 78–114.
9 Behavioral crime and punishment
The field of behavioral economics has presented a number of fascinating challenges to

the traditional approach to economics. An excellent description of behavioral eco-
nomics can be found in a book edited by Peter Diamond and Hannu Vartiainen (2007)
that surveys the growing field:
Over the last decade or so, behavioral economics has fundamentally changed the
way economists conceptualize the world. Behavioral economics is an umbrella of
approaches that seek to extend the standard economic framework to account for
relevant features of human behavior that are absent in the standard economics
framework. Typically, this calls for borrowing from the neighboring social sciences,
particularly from psychology and sociology. The emphasis is on well-documented
empirical findings: at the core of behavioral economics is the conviction that
making our model of economic man more accurate will improve our under-
standing of economics, thereby making the discipline more useful.
(p. 1)
Behavioral economists explicitly take into account that humans often behave in ways
that are quirky or flawed, that is, in ways that tend to violate the assumption of perfect
rationality. It is important to note, however, that behavioral economists do not com-
pletely reject the concept of rationality, but instead typically assume that individuals
face a number of complicated constraints that challenge the traditional economic
assumption that people make cognitively sound decisions. Furthermore, behavioral
economists often study a variety of individual and social objectives that go beyond
wealth maximization and dollar-for-dollar cost–benefit analyses.
The purpose of this chapter is to provide a succinct introduction to behavioral eco-
nomics as it applies to just a handful of specific topics discussed throughout the pre-
vious chapters. In no way will this be a comprehensive review of behavioral economic
concepts, or of the application of behavioral economics to crime and punishment.
Instead, the goal is demonstrate how behavioral economists can approach a traditional
topic through a fairly new lens. After five topics are examined, a very brief concluding
section will offer a comparison of traditional versus behavioral approaches.
Does efficiency matter?

It was established early on in Chapter 1 that the economic approach to crime and
punishment begins with identifying the fundamental trade-off between the cost of
Behavioral crime and punishment 113
crime deterrence (that is, the use of costly resources to establish the expected punish-
ment) and the benefit of crime deterrence (that is, the extent to which the expected
punishment reduces crime). From here, more intricate trade-offs can be examined,
including how resources can best be allocated between the certainty of punishment
versus the severity of punishment, and what sanctions can best be used in establishing
the severity of punishment. While there is no doubt that economists strongly care about
the efficient use of resources in fighting crime, an important question remains: does
anyone else care about efficiency?
One study (Sunstein, Schkade, and Kahneman, 2000) attempts to provide an answer
to this question. As part of the study, upper-level University of Chicago Law School
students responded to the following question:
Suppose the Internal Revenue Service (IRS) has a large number of agents per
10,000 people in California, but a small number of agents per 10,000 people in
Utah; suppose too that because of practical constraints, the IRS cannot increase
the number of agents in Utah. Suppose that you are the head of the IRS, and that
your second-in-command has sent you a memorandum saying, “To make up for
the shortfall of agents in Utah, and ensure the right level of deterrence, we need to
impose higher penalties for tax violations in Utah than for tax violations in Cali-
fornia. I recommend that you adopt a policy to this effect.” Putting aside purely
political considerations, would you agree with this policy?
(Sunstein, Schkade, and Kahneman, 2000, p. 245)
The students were asked to give one of four responses: strongly disagree; somewhat
disagree; somewhat agree; and strongly agree. So, what should we expect from this
exercise?
University of Chicago law students are exposed to optimal deterrence theory early in
their legal academic training. If any group of respondents, short of economists, should
agree with the proposed policy, it is this group. But that is not what occurred. Of the 84
students who participated in the study, 42 strongly disagreed, 21 somewhat disagreed,
18 somewhat agreed, and only three strongly agreed. That is, 75 percent of the
respondents disagreed with the policy and rejected one of the basic results of optimal
deterrence theory—a lower probability of apprehension needs to be coupled with a
higher severity of punishment to maintain a desired expected punishment.
The study offers the following conclusion, based on the above result (and other
results not discussed here):
People do not spontaneously think in terms of optimal deterrence, and indeed they
would be reluctant to accept an effort to build law on the foundation of optimal
deterrence theory. Their proposed punishments do not differ depending on the
probability of deterrence even when this factor is specifically drawn to their atten-
tion. In addition, people reject law-enforcement policies that increase or decrease
penalties because of the possibility of detection.
(Sunstein, Schkade, and Kahneman, 2000, p. 250)
Assuming that policy officials themselves care about optimal deterrence policies
(which, of course, may not be the case), to the extent that these officials cater to the
preferences of their constituents, the above conclusion suggests that it may be prag-
matically difficult to promote or implement such policies.
Risk, ambiguity, and expected punishment

In Chapter 3, the possibility that criminals respond not only to the level of the expected
punishment but to the magnitude of the various components was introduced. For
example, an expected punishment of $20,000 can be made up of: (1) a 20 percent cer-
tainty (considering apprehension and conviction) of a $100,000 fine, or (2) a 50 percent
certainty of a $40,000 fine. Are (1) and (2) equally deterring? If not, which offers the
greater deterrent effect, and why? While there are many possible answers to these
questions, one answer involves how criminals respond to changes in the level of risk
they face.
Imagine you must choose between the following two options: (a) you have a 100
percent chance of gaining $100; or (b) you have a 50 percent chance of gaining $200,
and a 50 percent chance of gaining $0. Which would you prefer? In each case, your
expected gain is $100, but in (a) the $100 is certain as opposed to in (b) it is on average.
In other words, option (b) involves risk. Let’s consider three possible answers. First,
you prefer (a) to (b). In this case, you are said to be risk-averse, that is, you prefer the
certain $100 to the average $100. Second, you prefer (b) over (a). In this case, you are
said to be risk-preferring, that is, you prefer the average $100 over the certain $100.
Finally, you are indifferent between (a) and (b). In this case, you are said to be risk-
neutral, that is, you are indifferent between $100 for certain and $100 on average.
From an economic perspective, the term “risk-averse” does not mean you do not
like risk or will avoid taking risks, just as the term “risk-preferring” does not mean
you like risk and will pursue risky behaviors. Instead, these terms usually refer to
your preference for a risky outcome compared to a specific certain outcome. For
example, you are risk-averse if you strictly prefer option (a) to (b). But what if you
can gain $60 for certain compared to $100 on average? Even if you are risk-averse,
you may very well choose the risky option now. Similarly, you are risk-preferring if
you prefer option (b) to (a). But what if you can gain $200 for certain compared to
$100 on average? Even if you are risk-preferring, you may very well choose the cer-
tain option.
To the extent that we can know if criminals are risk-averse or risk-preferring, this can
have substantial policy implications in terms of setting an expected punishment. For
risk-averse criminals, making a specific level of expected punishment less certain will
increase its deterrence value. For risk-preferring criminals, greater certainty enhances
deterrence. Of course, it may be very difficult to ascertain the risk preferences of crim-
inals, especially as different criminals are going to have different preferences for risk.
And that is not the only difficulty.
An individual can simultaneously be risk-averse and risk-preferring, depending on
the nature of the risk at hand. For example, an individual can purchase an insurance
policy to cover a potential loss, and at the same time purchase a lottery ticket in the
hopes of winning a prize in a random drawing. When you purchase insurance, you pay
a certain amount (the premium) to avoid a risky outcome, suggesting risk-averse
behavior. When you purchase a lottery ticket, you pay a certain amount to accept a
risky outcome, suggesting risk-preferring behavior. Thus, it is not uncommon for indi-
viduals to exhibit both risk-averse and risk-preferring behavior.
In addition, there is evidence to suggest that an individual may be risk-averse over
gains, but risk-preferring over losses. To explain what this means, consider two new
options: (c) you have a 100 percent chance of losing $100; or (d) you have a 50 percent
chance of losing $200, and a 50 percent chance of losing $0. In each case, your expec-
ted loss is $100, but in (c) it is certain and in (d) it is on average. In a traditional eco-
nomic model of risk (known as expected utility maximization), a risk-averse individual
prefers the certain gain over the average gain (that is, (a) over (b)), and the certain loss
over the average loss (that is, (c) over (d)). It is the certain outcome over the risky
outcome that matters, not whether it is a gain or a loss. In a refinement of the tradi-
tional model, an individual can be risk-averse and choose (a) over (b) while also be
risk-preferring and choose (d) over (c).
If it is the case that criminals are typically risk-averse over gains and risk-preferring
over losses, how can this information be used in setting an optimal expected punish-
ment? The important question is: do criminals consider their actions in terms of gains
or losses? There is no easy answer to this question. If criminals mostly focus on the
expected punishment component in their decision to commit crime, they are in the
domain of losses and may be risk-preferring. This suggests that more certain punish-
ment may enhance deterrence. On the other hand, if criminals mostly focus on the
benefits they receive from committing crimes, they are in the domain of gains and may
be risk-averse. This suggests that less certain punishment may enhance deterrence. Of
course, rational criminals may be considering both the benefits and costs of their
actions, making it difficult to classify their preferences toward risk.
To further complicate matters, in addition to how criminals perceive risk, it may also
be important to consider the concept of ambiguity. Recall options (a) and (b). In both
cases you can gain $100, with (a) involving a certain gain and (b) involving a risky
gain. But with option (b), you know the risks—a 50 percent chance of gaining $200 and
a 50 percent chance of gaining $0. Now consider option (e): you have an expected gain
of $100, but you do not know how that gain will be determined. (There are many ways
in which option (e) can be stated to yield an expected gain of $100. The important
point is that you do not know the explicit risks involved.) In other words, all three
options yield an expected gain of $100, but as you move from option (a) to (b) to (e),
you move from a certain outcome to a risky outcome to an ambiguous outcome. If you
prefer (b) to (e), you prefer the known risk to the unknown risk and you are said to be
ambiguity-averse. If, on the other hand, you prefer (e) to (b), you prefer the unknown
risk to the known one and you are said to be ambiguity-preferring.
One ambitious study (Baker, Harel, and Kugler, 2004) attempts to put all of these
concepts together to determine how the implementation of various forms of the
expected punishment can affect criminal behavior. For its experiment, the study
recruited 44 undergraduate students at the Hebrew University of Jerusalem. Each par-
ticipant was asked to consider choosing a monetary gain (the “benefit” of committing a
crime) while facing an expected punishment (the “cost” of committing a crime). Thus,
the study explicitly allowed for the participants to experience both a gain and a loss
from their actions. This allowed for the possibility of participants to exhibit risk-averse
or risk-preferring behavior depending on whether they placed more weight on gains or
losses. That is, the study did not “force” the participants to consider gains (or losses) as
being of primary importance.
Next, the study provided a thorough consideration of several potential expected
punishments, each taking into account a combination of the three concepts of
interest—certainty, risk, and ambiguity. Each expected punishment consisted of a
probability of apprehension (with the probability of conviction assumed to be 100 per-
cent), and a monetary sanction. Then each expected punishment considered the prob-
ability of apprehension to occur with certainty, with risk, or with ambiguity. Similarly,
each sanction could occur with certainty, with risk, or with ambiguity. With three
possible probabilities of apprehension and three possible sanctions, this allowed for a
total of nine different combinations of expected punishment, ranging from complete
certainty to complete ambiguity.
For example, the subjects could confront the probability of apprehension in three
different ways: they could know that the probability is 30 percent (any number would
work here); they could know that the probability can be either 20 percent or 40 percent
based on a coin flip they themselves do; or they could know that the probability can be
either 20 percent or 40 percent, but they do not know how it will be determined which
of the two probabilities will be used. The first case involves certainty, the second risk,
and the third ambiguity. A similar approach is taken for how the subjects could con-
front the sanction if apprehended: they could know that the sanction is $1,000; they
could know that the sanction can be $1,500 or $500 based on a coin flip they them-
selves do; or they could know that the sanction can be $1,500 or $500, but they do not
know how it will be determined which of the two sanctions will be used. Once again,
the first choice involves certainty, the second risk, and the third ambiguity.
One of the study’s main results is that the subjects strongly differentiated between
certain expected punishments and risky/ambiguous expected punishments, with cer-
tainty considered less severe. Furthermore, this result held for both the probability-of-
apprehension component and the sanction component of expected punishment. In
comparing risky expected punishments to ambiguous ones, there was a slight differ-
ence, with risky ones being less severe, but this was found to be just a small effect. In
short, the criminal’s perception of how certain is the expected punishment can impact
his behavior, and more risky/ambiguous expected punishments may allow for a greater
deterrent effect without requiring significantly greater resource costs to implement.
The policy implication of the study’s main result, then, is rather obvious—the
authorities may want to consider making the expected punishment more risky or
ambiguous. The study provides a few examples of how this may be accomplished. In
manipulating the certainty of the sanction, sentencing lotteries may be used:
Broad grants of federal criminal jurisdiction in the United States can expose defen-
dants who commit identical crimes to disparate sentences depending on whether they
are prosecuted by the state or by the federal government. When Rudolph Giuliani
was the United States Attorney in New York, he used the concurrent jurisdiction to
create a sentencing lottery. His plan involved a program in which one day was chosen
at random each week when all street level drug dealers apprehended by local autho-
rities would be prosecuted in federal court and consequently subjected to harsher
sanctions. Rudolph Giuliani explicitly embraced the deterrent possibilities of sen-
tencing lotteries when he stated: “the idea was to create a Russian roulette effect.”
(Baker, Harel, and Kugler, 2004, pp. 471–472)
In manipulating the certainty of the probability of apprehension, enforcement cam-

paigns may be used:
In an enforcement campaign, a law enforcement agency targets its resources in a
specific geographic area or on a specific type of offense. If increasing uncertainty
increases deterrence, a policy of enforcement campaigns would produce greater
deterrence than a policy that allocated a constant stream of resources to enforce-
ment by geographic area or type of offense. An enforcement campaign increases
the uncertainty of the probability of detection by publicizing the fact that, some-
times, the probability of detection will be very high. Although the public pre-
sumably is aware that law enforcement officials cannot consistently maintain a high
probability of detection in every time and place, the fact that sometimes the prob-
ability will be very high means that there is a wider range of potential probabilities
of detection in any particular time and place.
(Baker, Harel, and Kugler, 2004, pp. 473–474)
Thus, the study concludes, if it is desirable for the authorities to make the expected
punishment more risky or ambiguous, there may be practical ways to implement such
policies, both through manipulating the probability of apprehension and/or the severity
of the sanction.
Incapacitation, deterrence, and the framing of prison sentences

It is extremely common for convicted criminals to be sentenced to longer prison sen-
tences than the time they actually serve due to early release, or parole. The U.S.
Department of Justice, on their website, addresses the following question: what is
parole?
When someone is paroled, they serve part of their sentence under the supervision
of their community. The law says that the U.S. Parole Commission may grant
parole if (a) the inmate has substantially observed the rules of the institution; (b)
release would not depreciate the seriousness of the offense or promote disrespect
for the law; and (c) release would not jeopardize the public welfare.
Parole has a three-fold purpose: (1) through the assistance of the United States
Probation Officer, a parolee may obtain help with problems concerning employ-
ment, residence, finances, or other personal problems which often trouble a person
trying to adjust to life upon release from prison; (2) parole protects society because
it helps former prisoners get established in the community and thus prevents many
situations in which they might commit a new offense; and (3) parole prevents
needless imprisonment of those who are not likely to commit further crime and
who meet the criteria for parole. While in the community, supervision will be
oriented toward reintegrating the offender as a productive member of society.
Of course, one serious downside of early release is that the offender is no longer inca-
pacitated and may, therefore, commit further crimes. However, as discussed in Chapter
4, to determine an optimal sentence from an incapacitation perspective, early release
involves a comparison of the costs of incapacitation with the costs of future crimes
committed. In other words, the probability of recidivism is explicitly taken into account
when considering an offender’s eligibility for parole.
One clever study (Bushway and Owens, 2013) uses behavioral economics to address
an additional concern about early release. While there is some underlying probability of
recidivism that is taken into account when considering the granting of parole, the
question the study raises is: does this probability of recidivism increase due to parole? If
yes, the root of this problem involves what is known as a framing effect.
An excellent example of a framing effect is presented as a thought exercise in a
seminal paper by Nobel Laureate Richard Thaler (1980, p. 50):
(a) You set off to buy a clock radio at what you believe to be the cheapest store in
your area. When you arrive you find the radio costs $25, a price consistent with
your priors (the suggested retail price is $35). As you are about to make the pur-
chase, a reliable friend comes by and tells you that the same radio is selling for $20
at another store ten minutes away. Do you go to the other store? What is the
minimum price differential which would induce you to go to the other store?
(b) Now suppose that instead of a radio you are buying a color television for $500
and your friend tells you it is available at the other store for $495. Same questions.
These two scenarios are basically asking the same question that can be asked more
succinctly: would you travel for ten minutes to be given $5? The difference between the
scenarios, however, is in how that question is framed.
From a traditional economic perspective, when asking someone if they would
travel ten minutes to be given $5 you would get a yes answer from those who do
not consider the travel cost to be greater than $5, and a no answer from those who
do consider the travel cost to be greater than $5. In other words, there is no right
or wrong answer to this question: it depends on how each individual perceives the
cost of travel. Yet when the question is framed as in parts (a) and (b) above, what
is interesting is that you will find many individuals who would go to the other store
in scenario (a), but these same individuals would not go to the other store in sce-
nario (b). Why would a person choose to save $5 in (a) but not in (b)?
While it is true that both scenarios yield $5 to the individual who goes to the other
store, the obvious difference is that in (a) the $5 saving comes off a $25 price and in (b) it
comes off a $500 price. That is, the individual saves 20 percent in (a), but only 1 percent
in (b). This suggests that the utility an individual gets from the additional $5 depends on
the initial price. And for individuals who choose to go to the other store in both scenar-
ios, would that still be the case if we were dealing with a $5 saving off the price of
something even more expensive, like a new car? It is likely that as the initial price gets
higher, the utility associated with the $5 saving is going to diminish greatly.
In terms of prison sentencing, consider two criminals who are being sentenced for
committing an identical crime. The first criminal is sentenced to five years in prison and
must serve all five years. The second criminal is sentenced to ten years in prison but ends
up serving only five years. Do these two sentences lead to different effects on criminal
behavior? For the incapacitation effect, both criminals are imprisoned for five years so
that impact is the same. But what about the deterrent effect? That depends on precisely
what aspect of the deterrent effect we are considering.
Consider trying to deter these criminals before they commit their first crime. Intui-
tively, the threat of a ten-year sentence is likely to offer a greater deterrent than the
threat of a five-year sentence. However, to the extent that the criminal anticipates that a
ten-year sentence does not mean ten years served, the deterrent effect of the longer
sentence is undermined. In the extreme, if a rational criminal understands that the ten-
year sentence involves early release after just five years, this will lead to the same
deterrent effect as the five-year sentence. But here is where the study offers an interest-
ing behavioral twist.
In addition to deterring first crimes, the authorities are also concerned with dis-
couraging recidivism by developing policies that explicitly target repeat offenders (such
as with the three-strikes law from Chapter 4). How might the two sentences differ in
terms of their impact on recidivism? While both sentences equally involve five years of
time served, the five-year sentence in each case is framed differently. Because of this, if
one criminal is sentenced to five years and serves five years, this may be perceived as a
harsher punishment than being sentenced to ten years but only serving five. Why might
this be the case? The criminal who is sentenced to ten years but only serves five may
think he is getting off lightly relative to the initial sentence. The criminal who is sen-
tenced to five years and serves five years may experience no such feeling.
As an analogy, consider another setting in which this type of framing issue may
matter. You go to a department store and see a sweater that you would like to pur-
chase. The only price you see listed on the sweater is $100, and you decide to buy it.
When you get home, you notice another price tag on the inside of the sweater that
reads: “Original retail price $200: Our price $100.” Other than seeing that tag, nothing
has changed. It is the exact same sweater. You still paid $100 for it. But after seeing the
tag, do you feel happier about your purchase now? It is likely that many people would
feel happier.
To test if the recidivism rate depends on the amount of prison time served relative to the
length of the original sentence, instead of considering parole decisions the study takes
advantage of a revision in the state of Maryland’s sentencing guidelines that was enacted
on July 1, 2001. (The Maryland guidelines were previously discussed in Chapter 4.) The
revision involved a change in the offense scores for a number of crimes, with some crimes
seeing an increase in the recommended sentence, and others seeing a decrease. The crim-
inal history scores, however, were not changed. The study is able to compare offenders
with identical criminal history scores, committing identical crimes, subject to different
recommended sentence lengths depending on whether they were sentenced before or after
July 1, 2001. Thus, the study can compare recidivism rates for criminals who served
identical sentences but faced different recommended sentences for no reason other than a
change in the sentencing guidelines.
The study’s main result is that for a given length of time served, the longer is the
recommended sentence, the greater is the probability of recidivism. What is unusual
about this result is that when recommended sentences are suddenly changed, the crim-
inals who face the longer sentences are usually thought of as being “unlucky.” But in
this case, just the opposite occurs. Those who face longer recommended sentences, but
not longer actual sentences, are the “lucky” ones when they consider their actual sen-
tence relative to the prison time they could have served. As for some other results, the
study did not find that change in the guidelines had any impact on the sentences that
judges passed down, or on the actual time that criminals served in prison. Furthermore
(as discussed in Chapter 4), the guideline revisions were not motivated by changes in
the crime rates, and so reverse causation can be ruled out. Finally, the revisions did not
have any impact on deterring crimes from criminals who were not repeat offenders.
The study offers an interesting conclusion:
Our central finding that the framing of a given punishment matters has important
policy implications. In particular, the passage of legislatively mandated mandatory
minimum punishments that are not implemented by prosecutors, judges, and
parole boards may have perverse effects on recidivism. Our findings suggest that
the threat and the action of the criminal justice system can make punishment more
effective at reducing crime.
(Bushway and Owens, 2013, p. 326)
So what makes this conclusion “interesting”? From an economic perspective, it is

unusual, to say the least, to offer a policy implication that yields a benefit without an
offsetting cost. In the context of this study, it may be that recidivism can be reduced
without incurring any additional resource costs of imprisonment. How can this be
done?
If it is the difference between the recommended sentence and the actual time served
that impacts recidivism rates, the simple solution is to reduce this gap. This is precisely
what truth-in-sentencing laws can accomplish:
Truth in sentencing laws are enacted to reduce the possibility of early release from
incarceration. It requires offenders to serve a substantial portion of the prison
sentence imposed by the court before being eligible for release. Previous policies
which reduced the amount of time an offender served on a sentence, such as
goodtime, earned-time and parole board release, are restricted or eliminated under
truth-in-sentencing laws. The definition of truth in sentencing laws and amount of
time required to be served are primarily governed by state laws, which vary by
state. Although the time usually varies from 50% to 100% of the prison sentences,
in most truth-in-sentencing states offenders are required to serve 85% of the prison
sentence.
(USLegal.com website)
The resource cost of imprisonment is associated with the actual time served. Thus,
from a cost perspective, five years served is five years served regardless of the length of
the initial recommended sentence. But if five years served of a five-year sentence has a
greater deterrent effect on recidivism than five years served of a ten-year sentence, the
authorities can get more deterrence with the same cost simply by reducing the recom-
mended sentence.
Implicit racial bias

In Chapter 6, the issue of racial bias in the criminal justice system was examined. The
main question that was addressed is result-oriented: are Black defendants being treated
differently than White defendants due to racial bias? The important point emphasized
in that chapter is that researchers need to be careful to attribute differences in how
Blacks and Whites are treated to racial discrimination as opposed to statistical dis-
crimination and other confounding factors. The bulk of the research considers racial
bias to involve explicit racial animosity held by various agents of the criminal justice
system. In other words, those agents acting with bias know they are acting with bias.
But what if, instead, there are agents of the criminal justice system who act with racial
bias without realizing they are doing so? In the language of behavioral economics,
these agents are acting with implicit bias:
Implicit bias—by which we mean stereotypical associations so subtle that people
who hold them might not even be aware of them—also appears to be an important
source of racial disparities in the criminal justice system. Researchers have found
that most people, even those who embrace nondiscrimination norms, hold implicit
biases that might lead them to treat black Americans in discriminatory ways.
(Rachlinski, Johnson, Wistrich, and Guthrie, 2009, pp. 1196–1197)
If the social policy objective is to reduce racial bias in the criminal justice system, does
it matter if the bias is explicit or implicit?
There are (at least) two reasons why it may be important to distinguish between
explicit and implicit racial bias. First, what type of policy to enact may depend on
which type of bias is found to exist. For example, if individuals are exhibiting implicit
bias, simply making them aware of their behavior may help them reduce such bias.
Those exhibiting explicit bias, on the other hand, are already aware of their behavior.
Second, the likelihood that policy is enacted may also depend on whether the bias is
explicit or implicit. For example, consider a district attorney who sincerely believes that
his staff is not racially biased when prosecuting Black defendants. But if Black defen-
dants are being treated harsher than White defendants due to implicit bias, the district
attorney may see no reason to adopt policy that could help mitigate the differential
treatment because it would not be attributed to racial bias. If, on the other hand, the
district attorney believes members of his staff are explicitly biased, this could help
motivate policy to curb the bias.
Implicit bias can be exhibited by any agents of the criminal justice system. One study
(Rachlinski, Johnson, Wistrich, and Guthrie, 2009) focuses on identifying implicit
racial bias among judges. The study recruits 133 actual judges, and has information on
each judge’s race, gender, political affiliation, and years of experience. Across all of the
judges, 64 percent are White, 25 percent are Black, and the rest are Hispanic or Asian.
In terms of gender, 59 percent are male. The average years of experience is ten, and
three quarters of the judges are affiliated with the Democrat Party, the rest with the
Republican Party. In addition to several nuanced results (beyond the scope of this sec-
tion), the study finds three main results: judges exhibit implicit racial biases; these
biases have an impact on judicial behavior; and judges may attempt to compensate for
these biases.
To determine if judges exhibit implicit racial bias, the study administers to each
judge a commonly used test known as the Implicit Association Test (I.A.T.):
Much evidence of these forms of implicit bias comes from the Implicit Association
Test (IAT), which has been taken by large and diverse populations on the Internet
and elsewhere. The IAT asks individuals to perform the seemingly straightforward
task of categorizing a series of words or pictures into groups. Two of the groups are
racial or other categories, such as “black” and “white,” and two of the groups are the
categories “pleasant” and “unpleasant.” In the version of the IAT designed to test for
implicit racial bias, respondents are asked to press one key on the computer for either
“white” or “pleasant” words or pictures (a stereotype-consistent pairing); in a sepa-
rate round of the test, respondents are asked to press one key on the computer for
either “white” or “unpleasant” words or pictures (a stereotype-inconsistent pairing).
Implicit bias against African-Americans is defined as faster responses when the
“black” and “unpleasant” categories are paired than when the “black” and
“pleasant” categories are paired. The IAT is rooted in the very simple hypothesis that
people will find it easier to associate pleasant words with white faces and names than
with African-American faces and names—and that the same pattern will be found
for other traditionally disadvantaged groups.
(Jolls and Sunstein, 2006, p. 971)
The study finds that White judges exhibit a strong White preference, while Black
judges, taken as a group, exhibit no clear preference one way or the other.
In determining that implicit bias affects judicial behavior, the study presents hypo-
thetical cases that each judge is asked to consider. While the judges are not given
explicit information about the race of the defendant, half the judges are “primed” with
Black-associated words and the other half are primed with race-neutral words:
Before giving the judges the scenarios… we asked them to perform a subliminal
priming task… The task appeared to be a simple, computer-based, spatial recog-
nition task. To complete the task, the judges were required to focus their attention
on the center of the computer screen in front of them. Words appeared in one of
the four corners for 153 milliseconds before being masked by a string of random
letters. At that speed, words are extremely difficult to process consciously. Each
judge saw sixty words. Half of the judges saw words associated with black Amer-
icans, and half saw words with no common theme.
(Jolls and Sunstein, 2006, pp. 1212–1213)
The idea here is that if implicit bias does come into play, the judges primed with Black-
associated words may be more likely to consider the defendant to be Black, and this
could lead to differential sentencing. Indeed, this is what the study finds. For the group
of judges that exhibit a White preference on the I.A.T., those primed with Black-asso-
ciated words give harsher sentences than those primed with race-neutral words. For the
group of judges who exhibit a Black preference on the I.A.T., those primed with Black-
associated words give lighter sentences than those primed with race-neutral words.
Finally, the study also presents judges with hypothetical cases in which the race of
the defendant is known to them—some judges are told it is a Black defendant who had
harmed a White victim, and other judges are told it is a White defendant who had
harmed a Black victim. The judges are asked to render a verdict in each case, and to
express their degree of confidence in the accuracy of their verdict. In this setting, the
study does not find any evidence of racial bias. For the judges who exhibit a White
preference on the I.A.T. and for the judges who exhibit a Black preference, there is no
difference in how the Black and White defendants are judged.
One interpretation of this last result is that some judges may be attempting to correct
for any implicit biases they may have. For example, consider the study’s conclusion for
the group of judges that exhibit a strong White preference on their I.A.T.:
We believe that the data demonstrate that the white judges were attempting to
compensate for unconscious racial biases in their decisionmaking. These judges
were, we believe, highly motivated to avoid making biased judgments, at least in
our study. Codes of judicial conduct demand that judges make unbiased decisions,
at least in our study. Moreover, impartiality is a prominent element in almost every
widely accepted definition of the judicial role. Judges take these norms seriously.
When the materials identified the race of the defendant in a prominent way, the
white judges probably engaged in cognitive correction to avoid the appearance of
bias.
(Jolls and Sunstein, 2006, p. 1223)
As the race of the defendant is known to the judge in real-world cases, this last result
suggests that the judges themselves may be mitigating any potential implicit bias in
their behavior, thus possibly reducing the role for public policy intervention to deal
with this problem.
Nevertheless, to the extent that implicit racial bias is not being self-corrected, there
may be a role for policy intervention. While certain policies may help mitigate both
explicit and implicit racial bias (such as holding judges to tight sentencing guidelines,
as discussed in Chapter 6), it is interesting to consider policy interventions that may be
best suited for mitigating implicit bias only. One common proposal the study discusses
is to try to expose judges to stereotype-incongruent models, which can involve some-
thing as simple as displaying portraits of prominent Black leaders or jurists, such as
former president Barack Obama or Supreme Court Justice Thurgood Marshall, in the
courtroom. The advantage of this type of policy is that it requires very few resources to
implement, but the downside is that it may not be very effective, and it is unlikely to
have any impact in mitigating explicit racial bias. Another policy may be to subject
judges to the I.A.T., demonstrating to some of them that they do exhibit implicit racial
bias and allowing them to deal with that realization.
Finally, other policies may be suited to mitigating racial bias in general. Perhaps a
system of judicial auditing can be implemented. Currently, lower court judges do face
appellate review, but this review is not explicitly in place to correct for racial bias, and
this review tends to be performed on a case-by-case basis. A more comprehensive
review system may be used that tracks judicial decisions over a long period of time,
looking for trends that may suggest racial bias—explicit or implicit—is observed. Also,
moving away from single judges to a panel of judges, especially if the panel is demo-
graphically mixed, may help alleviate racially biased judicial decision making. Of
course, these last two policy options may require substantial resource costs to be
implemented, offsetting what may be difficult-to-measure benefits.
In all, there is a long-standing body of research across numerous academic dis-
ciplines that finds biased agents at all levels of the criminal justice system. As argued in
Chapter 6, it is important to distinguish between bias based on animosity and bias
based on legitimate differences between groups that requires, from an efficiency stand-
point, these groups to be treated differently by the system. Behavioral economists have
added another complication to the issue by recognizing the potential for implicit bias.
This form of bias may be subtle, but it also may be far more pervasive in the criminal
justice system than explicit racial bias. Implicit bias, to the extent that it generates
social costs, is certainly worth considering from a social policy perspective.
Addiction and impatience

In Chapter 8, the concept of rational addiction was introduced. As difficult as it is to
think about a rational criminal, it is perhaps more challenging to think about a rational
drug addict. But since drug use is an illegal activity, it makes perfect sense from an
economic perspective to model even a drug addict as a rational criminal. To the extent
that drug addicts are rational, this presents a stronger case for the potential effective-
ness of demand-side drug control policies to deter drug use. By assumption, the
rational addict considers the benefits and costs of her actions. As the expected punish-
ment is surely a part of the costs of drug use, the authorities have a policy tool that
may be able to deter the behavior of drug users. Thus, by considering the behavior of
addicts to be (at least somewhat) rational, the efficacy of drug enforcement policy may
be enhanced.
On the other hand, by considering the behavior of drug addicts to be rational, the
justification for drug enforcement policy may be reduced. If addicts are assumed to
understand what is in their own best interests, any policies that make it difficult for
addicts to consume drugs will lower their personal welfare. But does this matter?
Maybe not, as there are surely other justifications for drug enforcement policy. Drug
users may impose costs on others, such as through increased medical insurance costs,
increased property and violent crime, increased automobile accidents while driving
under the influence, and so on. It is not difficult to justify drug control policies but, as
discussed in Chapter 8, it must also be taken into account that such policies typically
use a tremendous amount of resources and are not found to be widely effective. Thus,
any justification for drug control policy is well worth considering in a complete cost–
benefit analysis.
While it is possible to model the behavior of drug addicts to be completely irrational,
if this were the case the authorities would have to contend with the likely ineffectiveness
of demand-side drug control policies. That is, would an irrational addict respond to
changes in the expected punishment? Some behavioral economists, however, have
introduced an approach to addiction that maintains rational behavior on the part of
the addict, yet identifies a behavioral flaw that may strengthen the justification for
social policy to protect the addict from herself. This behavioral flaw involves a parti-
cular aspect of an addict’s degree of impatience, a core concept in any model of
addictive behavior.
The typical addict is thought of as making a choice between a current benefit such as
getting high, and a future cost such as poor health outcomes. In this case, one simple
prediction of the rational addiction model is that the more shortsighted (or myopic) is
the individual, the more likely she is to become an addict. This is because the more
impatient the individual, the less weight she will place on future outcomes. So even
substantial future health costs, if heavily discounted, will not persuade the individual
from consuming drugs if the current benefits are large enough (and note, the benefits
do not have to be all that large if they accrue currently). If impatience does predict
addictive behavior, is this a social problem? It depends on how you think about
impatience.
One common expression many of us learn as children is: “patience is a virtue.” With
this thinking, impatience is often associated with “bad” behavior, at least from a social
perspective. But to an economist, patience may be considered a preference, a char-
acteristic that varies from person to person, and there is no right or wrong patience
level. In this sense, impatience is used to predict behavior, not condemn it. For exam-
ple, two individuals facing and understanding the exact same costs and benefits of drug
use can choose two very different paths—the more impatient one becomes a drug user,
the other does not. If she prefers to be a drug user, and she is not harming anyone else,
what does society gain by preventing her from enjoying being a drug user? The
behavioral twist here is that a different question is asked: what if she herself does not
want to consume as many drugs as she chooses to consume?
Consider the following scenario. One individual weighs the costs and benefits of
consuming drugs and makes the following decision: he will consume drugs for five
years and then completely quit. As he progresses through the five years, when the time
comes to quit he actually does quit. This individual is said to be time consistent in his
behavior. That is, he maps out a consumption path and does not deviate from it.
Another individual weighs the exact same costs and benefits of consuming drugs and
decides to consume drugs for five years and then quit. As she progresses through the
five years, when the time comes to quit she does not quit. This individual is said to be
time inconsistent in her behavior. That is, she maps out a consumption path but does
not stick to it. Initially, her preference is to quit in five years, but after five years she
has what is known as a preference reversal. Why does this reversal occur for her?
There could be several reasons why she changes her mind and decides not to quit in
five years. She may face completely different circumstances in her life. That is, the
evaluation of the costs and benefits of her actions can change over time. For our pur-
poses here, however, let’s assume not only that her costs and benefits do not change,
but that she faces the identical costs and benefits as does the first individual. This
allows us to point to one specific difference between the two individuals, and that
involves the nature of their impatience levels over time. The time-consistent individual
discounts future outcomes the same way in the short run and the long run. The time-
inconsistent individual, on the other hand, is more impatient in the short run than in
the long run. A simple numerical example will illustrate this point.
Let’s say you get to choose between receiving $1,000 in three years from today, or
$1,200 in four years from today. You must make the choice today, and you decide to
take the $1,200 in four years. When three years have passed, however, we give you
another chance at that time—you can take the $1,000 right away or wait one year and
receive $1,200. If you are time consistent, you will still choose the $1,200 in one year. If
you are time inconsistent, you will change your mind and take the $1,000.
When considering two outcomes that are both in the future, the time-inconsistent
individual is relatively patient between them. But every future period eventually
becomes a current period, and when considering a current period versus the next one,
the time-inconsistent individual is relatively impatient between them. So when the time-
inconsistent drug user thinks about her whole future consumption path, she sincerely
believes she will quit drugs in five years. Her rational decision at the starting point in
time includes her being relatively patient between the end of five years and the
immediate future after that. At the end of five years, though, her rational decision
includes her being relatively impatient between her current period and her immediate
future, and she decides not to quit.
From a policy perspective, one interesting aspect about time-inconsistent behavior in
this context is that it is the drug user herself who initially wants to quit using drugs.
This suggests that a policy designed to help (or force) her to quit can simply allow her
to follow her own plans. This may appear to be a strong justification for drug control
policy, especially compared to a traditional paternalistic approach that defines drug use
as “bad” regardless of how the drug user feels about her behavior. But using time-
inconsistent behavior to justify drug control policy has some complications.
There are two broad categories of time-inconsistent behavior—sophisticated and
naïve. The sophisticated individual recognizes her time-inconsistent problem. In this
example, the drug user wants to quit in five years, but knows she will not due to her
changing level of impatience. This anticipation can be used to help counter her future
preference reversal, possibly through various self-control mechanisms. In contrast, the
naïve individual doesn’t recognize her time-inconsistent problem—she fully expects to
quit in five years. Furthermore, even when she experiences a preference reversal, she may
still not recognize herself as being time inconsistent. As explained in a paper by two of
the originators of this behavioral model of addiction, “a person has what might be called
complete naivete about her naivete” (O’Donoghue and Rabin, 2001, p. 127, note 8).
So what does this analysis imply about justifying demand-side drug control policies
to protect drug users from themselves? Will such policies actually make drug users
better off? If we first consider time-consistent drug users, drug control policies will not
make this group better off. A time-consistent drug user chooses his consumption path
and sticks to it. He will not experience any regret, and he will not have to devote
resources to self-control mechanisms that keep him from deviating from his chosen
path. Any policy intervention that forces him to deviate from his chosen path necessa-
rily makes him worse off. For the sophisticated time-inconsistent drug user, however, it
may be a completely different matter.
If a drug user is sophisticated and time inconsistent, she recognizes her potential for
a preference reversal. Because of this, she may invest in self-control mechanisms that
help her avoid the reversal. For example, perhaps she plans to check herself into a
rehabilitation clinic at the end of five years of drug use to commit her to quitting drugs.
Furthermore, she may appreciate social policies that help her maintain her preferred
consumption path. Along this line, there is some evidence that smokers support certain
policies that restrict their behavior. One study (Gruber and Mullainathan, 2005) finds
that increased cigarette taxes, which can reduce smoking, actually makes smokers
happier. Another study (Hersch, 2005) finds that smokers themselves often support
policies that ban smoking in public venues. It may be very difficult for a smoker who
tries to refrain from smoking to do so on her own, but a policy that bans smoking at,
for example, the workplace, can force her to curtail her behavior. If an individual wel-
comes policy intervention, this can be a strong justification for such intervention.
Finally, this leaves us with the naïve time-inconsistent drug users. At first blush, there
appears to be a strong justification for protecting naïve drug users from themselves, but
the focus of this justification has changed over time, as argued in a paper written by sev-
eral of the leading scholars in the field (Camerer, Issacaroff, Loewensteing, O’Donoghue,
and Rabin, 2003):
Historically, the core justification for paternalism arose from skepticism about the
ability of certain categories of people to make decisions in their best interest.
Beginning in the nineteenth century, this category was comprised of those deemed
incapable of contracting for themselves, including, in the words of one leading case,
“idiots, minors or married women.” Paternalism was the appropriate social response
for those who were to be treated ultimately as wards of the state. While our con-
ception of the competence of women has changed markedly, and the “idiot” desig-
nation arouses discomfort, this general rationale for paternalism persists.
Our approach accords even better with a second justification for paternalism which
focuses on situations rather than persons. A number of regulations reflect the fear
that even people of sound mind might not act in their long-term self-interest in
certain predictable situations. For example, usury laws and laws against selling
oneself into indefinite servitude protect those in desperate economic straits from
accepting contracts with potentially devastating long-term consequences. Health
and safety regulation of dangerous occupations was based on fears that pressure to
provide for one’s family might lead people to incur risks deemed unacceptable to
the larger society. Regulation of narcotics may stem from concerns that narcotics
have the capacity to turn ordinarily functioning people into the equivalent of
“minors” or “idiots.”
(p. 1213)
Whether you think about individuals or situations, there is a paternalistic paradox that
needs to be addressed. If these drug users are truly naïve, they may act in ways that
appear not to be in their best interests, but that same naivety also prevents them from
appreciating any measures that are implemented to protect them from themselves. That
is, if they are naïve about their naivety, can paternalistic social policy make them better
off in their own minds?
Consider the naïve time-inconsistent drug user who plans to consume drugs for five
years then quit. How will she respond to policy that alters her consumption path? As
she sincerely believes she will stick to her consumption path, just as would a time-
consistent individual, any alteration of this path cannot make her better off. The more
interesting question, though, is: how will she respond to policy that allows her to
adhere to her consumption path? She initially wants to quit in five years, but by that
time she has a preference reversal and no longer wants to quit. Is it a strong justifica-
tion for policy intervention if the authorities can force her to quit, exactly like she
initially planned on doing? After all, it isn’t the authorities who want her to quit, it is
the drug addict herself who wanted to quit. As one commentator points out:
The old paternalism said, “We know what’s best for you, and we’ll make you do it.”
The new paternalism says, “You know what’s best for you, and we’ll make you do it.”
(Whitman, 2006, p. 2, emphasis in original)
Does this “new” paternalistic justification for intervention make the naïve time-incon-
sistent drug addict better off? Not necessarily.
While it is true that the drug addict wanted to quit in five years when she thought
about it from an earlier perspective, the problem is when the five years are up she
thinks about her behavior from the current perspective. And currently (that is, at the
end of five years), she is more impatient about the next period than she was five years
earlier. This is what leads to her preference reversal. The key point is that even though
she does not adhere to her initial consumption path, a preference reversal is still a
preference. At that point in time, she sincerely does not want to quit consuming drugs.
No one is forcing her not to quit—she chooses not to quit. Thus, policy intervention
that forces her to quit can make her worse off.
As long as the war on drugs continues, there will be legitimate concerns about its
effectiveness from a cost–benefit perspective. There is no doubt that a tremendous
amount of resources are devoted to this war, but there is substantial doubt about the
benefits of the war in actually reducing drug use. Behavioral economists have identified
a legitimate justification for a drug control policy that is based on correcting time-
inconsistent behavior. The problem is that such policy will not make all drug users
better off in their own minds—it depends on what type of time-inconsistent behavior is
being exhibited. Sophisticated drug users may welcome drug control policy; naïve drug
users may not.
In the end, these behavioral arguments may not matter. One doesn’t have to rely on
the “new” paternalism to justify drug control policy. The “old” paternalism may do
just fine. The authorities may argue that drug use is bad, period. This will hold for
time-consistent and time-inconsistent drug users. It’s not making drug users better off
in their own minds that matters. Instead, it’s making drug users better off in others’
minds, be it the policy officials or society in general. Furthermore, drug users and
producers may impose substantial costs on others, and protecting others provides a
strong traditional justification for drug control policy. Nevertheless, the behavioral
arguments add nuance to the debate, and allow for more informed policy analysis.
Behavioral versus traditional economics: final thoughts

As is often the case when new theory challenges traditional theory, some scholars
choose sides, as demonstrated by the following two quotes:
The battle to separate the economic analysis of legal rules and institutions from the
straitjacket of strict rational choice assumptions has been won. The fundamental
methodological assumptions of rational choice economics, that individual behavior
necessarily maximizes subjective expected utility, given constraints, has been lar-
gely rejected as an unyielding postulate for the analysis of legal policy. Yes, such an
assumption, even if inaccurate, simplifies the world, but it does so in an unhelpful
way—much in the way it is unhelpful for a drunk who has lost his car keys in the
bushes to search under the streetlight because that is where the light is.
(Korobkin, 2011, p. 1655)
While behavioral economics broadly, and behavioral law and economics in parti-
cular, are too new to support bold predictions about what future laboratory and
field evidence might show, the theoretical and empirical infirmities plaguing the
behavioral welfare claims suggest these faults will prove to be enduring limitations.
Further, the chasm between the aggressive policy interventions proposed in the
behavioral law and economics literature and the interventions (if any) warranted
by existing behavioral economic theory and empirical evidence is a warning sign of
a discipline far overextended.
(Wright and Ginsburg, 2012, pp. 1087–1088)
As is also often the case, the truth likely falls somewhere between these two extreme
views. Claiming that the battle “has been won” tends to ignore the phenomenal
amount of current traditional economic research being undertaken in the field of crime
and punishment (as demonstrated in all of the previous chapters). On the other hand,
claiming that behavioral analysis suffers from infirmities that will prove to be “endur-
ing limitations” ignores the substantial breakthroughs that behavioral economists have
made.
Behavioral and traditional economics can just as easily be thought of as com-
plementing each other, as opposed to being at odds with each other. After all, to
develop models of behavioral quirks and flaws, the benchmark of fully rational beha-
vior (that is, not quirky or flawed) must be understood. Furthermore, if the primary
social objective is to get individuals to behave as if they are fully rational, behavioral
economists who are concerned with social policy must rely on the benchmark of
rational behavior to motivate policy advice. In the end, however one feels about these
various approaches to economic analysis, it is certain that both approaches will con-
tinue to exist side by side. In terms of truly understanding human behavior from an
economic perspective, embracing both approaches is likely to be for the best.
References
Baker, T., Harel, A., and Kugler, T. (2004) “The Virtues of Uncertainty in Law: An Experi-
mental Approach,” Iowa Law Review, 89: 443–494.
Bushway, S.D. and Owens, E.G. (2013) “Framing Punishment: Incarceration, Recommended
Sentences, and Recidivism,” Journal of Law and Economics, 56: 301–331.
Camerer, C., Issacaroff, S., Loewensteing, G., O’Donoghue, T., and Rabin, M. (2003) “Regula-
tion for Conservatives: Behavioral Economics and the Case for ‘Asymmetric Paternalism’,”
University of Pennsylvania Law Review, 151: 1211–1254.
Diamond, P. and Vartiainen, H., eds (2007) Behavioral Economics and its Applications, Prince-
ton, NJ: Princeton University Press.
Gruber, J. and Mullainathan, S. (2005) “Do Cigarette Taxes Make Smokers Happier?” Advances
in Economic Analysis and Policy, 5: 1–43.
Hersch, J. (2005) “Smoking Restrictions as a Self-Control Mechanism,” Journal of Risk and
Uncertainty, 31: 5–21.
Jolls, C. and Sunstein, C.R. (2006) “The Law of Implicit Bias,” California Law Review, 94: 969–996.
Korobkin, R. (2011) “What Comes after Victory for Behavioral Law and Economics?” University
of Illinois Law Review, 2011: 1653–1674.
O’Donoghue, T. and Rabin, M. (2001) “Choice and Procrastination,” Quarterly Journal of Econom-
ics, 116: 121–160.
Rachlinski, J.J., Johnson, S., Wistrich, A.J., and Guthrie, C. (2009) “Does Unconscious Racial
Bias Affect Trial Judges?” Notre Dame Law Review, 84: 1195–1246.
Sunstein, C.R., Schkade, D., and Kahneman, D. (2000) “Do People Want Optimal Deterrence?”
Journal of Legal Studies, 29: 237–253.
Thaler, R.H. (1980) “Toward a Positive Theory of Consumer Choice,” Journal of Economic
Behavior and Organization, 1: 39–60.
Whitman, G. (2006) “Against the New Paternalism,” Policy Analysis, February: 1–16.
Wright, J.D. and Ginsburg, D.H. (2012) “Behavioral Law and Economics: Its Origins, Fatal
Flaws, and Implications for Liberty,” Northwestern University Law Review, 106: 1033–1088.
10 Economists and crime
One of the most interesting and controversial studies in the economics of crime litera-
ture since the 1990s (Donohue and Levitt, 2001) raised a simple yet shocking question:
does an increase in current abortion rates reduce future crime rates? And when one of
the authors published a best-selling book (Levitt and Dubner, 2005) that highlighted
the abortion and crime link, all of a sudden the economic analysis of crime was given
national attention. But that attention was often not flattering, as the authors of the
study were severely criticized not only for their results, but for undertaking the study in
the first place. Although the abortion and crime link has been well presented elsewhere,
it is worth briefly highlighting the results of the study not so much to discuss the results
in and of themselves, but to address a separate issue: what does raising and answering
this type of question tell us about economists and their approach to analyzing crime?
Abortion and the crime rate

The study begins with two widely agreed-upon facts. First, due to the Supreme Court’s
1973 Roe v Wade decision in which abortion was legalized in the U.S., there was a
substantial increase in the abortion rate at that time. Second, throughout the 1990s, the
crime rate in the U.S. sharply declined:
Crime fell sharply in the United States in the 1990s, in all categories of crime and
all parts of the nation. Homicide rates plunged 43 percent from the peak in 1991 to
2001, reaching the lowest levels in 35 years. The Federal Bureau of Investigation’s
(FBI) violent and property crime indexes fell 34 and 29 percent, respectively, over
the same period. These declines occurred essentially without warning: leading
experts were predicting an explosion in crime in the early and mid-1990s, precisely
the point when crime rates began to plunge.
(Levitt, 2004, p. 163)
The purpose of the study is to determine if these two facts are linked. That is, does the
increase in the abortion rate in the 1970s help explain the reduction in the crime rate in
the 1990s?
It is fairly well established that crime rates are highest for criminals between the ages
of 18 and 24. The increased abortion rate in the mid-1970s, then, can reduce the crime
rate approximately two decades later for two main reasons. First, quite simply, with
more abortions there are fewer people born. By reducing the population size of the
future 18-to-24-year-old cohort, it is predicted that there will be less crime. The second
Economists and crime 131
reason has to do with the demographics of the women who are most likely to receive
abortions. These demographic categories include teenage girls, unmarried women, and
poor women who are pregnant. Children born to these women are themselves, unfor-
tunately, associated with demographic markers that are positively correlated with their
likelihood of being criminals when they are older. In short, abortion not only acts as a
population control, it acts as a population control for groups with specific demographic
markers that to some extent predict criminal behavior.
The study finds that the legalization of abortion in the 1970s did help reduce the
crime rate in the 1990s. Quantitatively, the study finds (remarkably) that approxi-
mately half of the reduction in crime in the U.S. between 1991 and 1997 can be
attributed to legalized abortion. To support this claim, the study finds that for the
few states that legalized abortion three years before the Roe v Wade decision, they
experienced a drop in crime rates three years before other states experienced their
drop. Furthermore, the effect of abortion on crime appears to be strong when the
study is careful to control for other confounding factors that may lead to a lower
crime rate, such as increased incarceration rates, increased size of police forces, and
strong economic conditions.
It didn’t take long for this study to draw critical attention from other scholars who
challenged its methodology and found opposing results (for example, see Joyce, 2004).
This is entirely expected, as seen with numerous empirical analyses of other social
issues discussed throughout this book. What is unusual about this particular study,
though, is the outpouring of harsh criticisms it attracted from laypeople, such as the
following:
This study is so fraught with stupidity that I hardly know where to start refuting it.
Naturally, if you kill off a million and a half people a year, a few criminals will be
in that number. So will doctors, philosophers, musicians, and artists.
(Catholics for a Free Choice website)
We cannot abort or sterilize our way into a more tranquil, law-abiding society, and
we must speak loudly against “conjecture” that even raises the notion that this is a
plausible course.
(Cardinal O’Conner website)
The idea that it’s certain people you kill before they’re born that reduces crime is
horrific and smacks of eugenics.
(Euthanasia website)
Might I suggest another avenue of research? Let’s determine what conditions lead
families to produce academics who have no sense of the sanctity and dignity of
human life. Some early childhood intervention in values education might really pay
off.
(Susan Wills website)
While everyone is entitled to their opinion, the problem with these critics is that they
simply misunderstand the point of the study. In the authors’ own words (written prior
to the criticisms):
We should emphasize that our goal is to understand why crime has fallen sharply
in the 1990s, and to explore the contribution to this decline that may have come
from the legalization of abortion in the 1970s. In attempting to identify a link
between abortion and crime, we do not mean to suggest that such a link is “good”
or “just,” but rather, merely to show that such a relationship exists.
(Donohue and Levitt, 2001, p. 382)
In other words, the research is not really about abortion, but about trying to explain
why the crime rate declined in the 1990s. So why does this matter?
The authorities devote a tremendous amount of resources to fighting crime, and this
“success” story in the 1990s may be an indication that the resources were used effi-
ciently. But precisely which resources? What aspects of the criminal justice system can
be given credit for the sharp decline in crime? From a policy perspective, this is an
important question to answer. Perhaps the authorities can improve efficiency by
understanding which policies were successful and which were not.
One literature review (Levitt, 2004, see Chapter 5) attempts to disentangle the various
explanations that claim to account for the drop in the crime rate in the 1990s. The review
discusses six factors that (it believes) does not explain the decline, and four factors that
do. More specifically, all of the factors can, in theory, have an impact on reducing the
crime rate. The purpose of the review is to examine the empirical validity of each factor.
The review does not find that the strong economy, the aging population, better policing
strategies, tougher gun control laws, concealed-weapons (that is, shall-issue) laws, or
capital punishment had much impact in reducing the crime rate. The review does find
that increases in the number of police, the rising prison population, the receding crack
cocaine epidemic, and the legalization of abortion in the 1970s did have impact on
reducing the crime rate.
The debate over abortion and its ultimate legalization in Roe v Wade had nothing to
do with its potential to reduce future crime. The study only points out that one side
consequence of the Supreme Court’s decision is that it may have led to the decline in
crime rates during the 1990s. What is interesting about this result is that, if true, it leads
to a reduction in crime rates without the authorities devoting any resources specifically
to the fighting of crime. An implication of this result is that the authorities may want to
reconsider how best to allocate resources to fighting crime, especially away from the
factors that may not have an impact on crime rates. As controversial as the abortion/
crime link may be, economists are always concerned about the efficient allocation of
resources, wherever the analysis may take us.
Final thoughts: what economists do

I personally believe that economists are at their best in raising questions, and we typi-
cally distinguish ourselves from other disciplines by the type of questions we raise (see
Winter, 2013). We have seen many examples of this throughout this book. Do criminals
respond more to the certainty or severity of punishment? Are monetary fines and
shaming punishments efficient? Does enhanced police presence deter crime or simply
displace it? Are wealthy defendants overpunished relative to poor ones? Does capital
punishment lower the wrongful conviction rate? Is racial profiling an efficient or biased
policing strategy? Do concealed handgun laws deter crime? Does the war on drugs lead
Economists and crime 133
to an increase in property and violent crime? But as important as it is to raise these
types of questions, the next step involves trying to answer them.
Economists are generally well suited to undertake empirical studies, and advance-
ments in statistical software and computing power over the years have facilitated
sophisticated analyses. Still, even when economists widely agree on the theoretical
underpinnings of whatever issue is at hand, those who do empirical research are at the
mercy of the limitations of statistical analysis (as discussed in Chapter 2). It is these
limitations that have led to contentious empirical debates that appear to have no reso-
lution, especially with important social issues such as capital punishment, racial dis-
crimination, gun control laws, and so on.
While it can be frustrating to be confronted with a lack of empirical consensus, the key
point to take away from these debates is that one should not rely on any single study, or
even body of studies, to reach what is perceived to be an unambiguous policy conclusion.
I like to think of empirical studies as adding more pieces to the policy puzzle. The pieces
may not fit together very well, and the puzzle may never be complete, but the more
pieces that are added may eventually help the picture become clearer. But because the
picture never becomes perfectly clear, the lack of consensus in empirical studies of key
social issues suggests, at a minimum, that economists should proceed very carefully
before undertaking the last stage of policy analysis—advising social policy.
Economists take several approaches to advising social policy. Many simply don’t.
Either their research is highly abstract and doesn’t lend itself well to policy implica-
tions, or they simply prefer to leave it to their readers to come to their own policy
conclusions. With public policy research, however, what is fairly common is that
economists include some discussion of policy implications in their studies. The best of
these studies make it clear that their results explicitly depend on their available data
and the specific statistical methodology employed. That is, they recognize the limita-
tions of their results in advising public policy.
In the extreme, some economists take an active role in promoting their policy advice.
They may be in high-level advisory positions that give them direct access to policy officials,
or they may be in policy positions that allow them to actually implement their proposals.
Alternatively, they may try to promote their proposals through media outlets and other
public venues. There is no “correct” approach to advising public policy. It usually boils
down to the personality of the economist. But regardless of how active a role an economist
wants to take in advising policy, there is still one major issue that must be confronted: for
whatever issue is at hand, exactly what is the appropriate social policy objective?
Even if we ignore the ambiguities involved with empirical research, advising policy
requires some understanding of a policy objective. For example, let’s assume that the
economist can account for every possible trade-off associated with some social policy
issue. Furthermore, he has the ability to accurately measure all of the costs and benefits
of some policy solution, without any ambiguities. Now it would seem like a straight-
forward task to advise public policy. If the benefits of the policy exceed the costs,
implement the policy. But this presupposes that we are weighing the costs and benefits
equally in a dollar-for-dollar sense. Does economic analysis lead us to this conclusion?
Economic analysis really has nothing to say about what the appropriate social
objective is. To be clear, many economists, myself included, are perfectly comfortable
with social wealth maximization as an appropriate social objective. In this case, a
dollar-for-dollar comparison of costs and benefits will yield a policy conclusion. But
that is not the same thing as saying social wealth maximization is the correct social
objective. There is no reason to believe that costs and benefits should be given equal
weight, or that other factors don’t matter. For example, as discussed in Chapter 8, the
war on drugs may not make sense from a dollar-for-dollar cost-benefit perspective, but
it may make sense from some other perspective that places emphasis on illicit drugs
being a scourge on society that should be fought regardless of the costs.
Economic analysis can certainly aid policy decisions. If a policy official asks me as
an economist to undertake a study looking at the costs and benefits of the three-strikes
law, as an example, I can do that by using economic theory and empirical analysis. The
results of my study can then be presented to the policy official for her to do with
whatever she wants with the information. But if the policy official asks me if the three-
strikes law should be implemented, my response to that would be: “that depends on
what your social objective is.” Granted, that is only my opinion on how to approach
social policy issues using economic reasoning, but I think it is important to recognize
that a social policy objective truly is a matter of opinion.
One of my favorite quotes on this issue is by legal scholar Ward Farnsworth (2002):
The things people want and value are too complicated. What counts as good and
bad, fair and unfair, just and unjust, and how much anyone cares about the
answers to those questions—the content and extent, in other words, of our taste for
fairness and distaste for injustice—are important to people; the answers to those
questions are significant aspects of how we define ourselves. So long as this is true,
no amount of argument ever is likely to show that debating those questions and
giving weight to the answers perforce will make people worse off.
(p. 2026)
In other words, social wealth maximization is fine to consider, but it does not represent
the whole social welfare picture for those who are concerned with social policy issues.
When I teach my public policy courses, I have no interest in convincing my students
to accept economic reasoning. My only interest is in teaching them what economic
reasoning entails, and how it can be applied to social issues such as those discussed
throughout this book. At the end of the course, if they choose to reject economic rea-
soning, I hope it is at least with an understanding of why they are rejecting it. Econo-
mists bring some interesting ideas to the mix of public policy debate. I believe that this
can only make such debate more productive.
References
Donohue, J.J. and Levitt, S.D. (2001) “The Impact of Legalized Abortion on Crime,” Quarterly
Journal of Economics, 116: 379–420.
Farnsworth, W. (2002) “The Taste for Fairness: Review of Fairness versus Welfare by L. Kaplow
and S. Shavell,” Columbia Law Review, 102: 1992–2026.
Joyce, J.T. (2004) “Did Legalized Abortion Lower Crime,” Journal of Human Resources, 39: 1–28.
Levitt, S.D. (2004) “Understanding Why Crime Fell in the 1990s: Four Factors that Explain the
Decline and Six that Do Not,” Journal of Economic Perspectives, 18: 163–190.
Levitt, S.D. and Dubner, S.J. (2005) Freakonomics, New York: Harper-Collins.
Winter, H. (2013) Trade-Offs: An Introduction to Economic Reasoning and Social Issues, Second
Edition, Chicago, IL: University of Chicago Press.
Index
1033 Program 16 Italian Collective Clemency Bill 40–41

1984 1
judicial bias 63–64, 73–79
asset seizure laws 25, 108 juror bias 64–66
crime definitions 9–10 Lojack 87–88

criminal sanctions, harshness of 46–48
Mapp v Ohio 19
death penalty Maryland Sentencing Guidelines
administrative costs of 61–62 42, 119
deterrent effect and 53–59 Megan’s Law 30–32
racial bias and 62–66 methamphetamine, drug control policy and
wrongful conviction/execution and 109–110
59–61
drug legalization 107–110 parole 117
drug prohibition, violence and 105–107 peremptory challenges 80
drug use plea bargaining 56
external costs of 100–101 policing
property crime and 104–105 clearance rates and 17–18
rational addiction and 102–103 information technology and 18
time inconsistency and 125–128 military equipment usage and 16–17
Port Arthur massacre 94–95
economic epidemiology 97–98 prison
elasticity of demand 103–104 incapacitation versus deterrence effects of
empirical analysis, primer on 11–12 34–39
enforcement campaigns 116–117 juvenile sentences and 37–38
exclusionary rule 19–20 privatization and 45–46
expected punishment, risk/ambiguity aversion quality of life and 38–39
and 114–117 sentence enhancements and 37–38
wealthy defendants and 48–50
Federal Sentencing Guidelines 74–75 private security measures, deterrence versus
fines, problems with 24–26 displacement 85–88
framing effects 117–120
racial bias
gun control bail and 75–78
cross-state trafficking and 90–92 criminal background checks and 81–82
gun buybacks and 93–95 parole boards and 79
gun show loophole and 92–93 prosecutors and 75
mass shootings and 95–96 racial profiling and 69–73
safe storage laws and 93 Ring v Arizona 64
Roe v Wade 120
Implicit Association Test 121–123 Royal Commission into Aboriginal Deaths in
implicit racial bias 120–123 Custody 82
136 Index
sentencing lotteries 116 Timbs v Indiana 108
sexual offender laws 30–32 truth in sentencing laws 120
shall issue laws 88–90
shaming punishments 29–30 veil of darkness hypothesis, racial profiling
speeding 5–9, 25 and 71–72
terrorist acts, police presence and 14–15 white-collar crime 27–28

three-strikes laws 43–44

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Economics Crime

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The Economics of Crime

The Economics of Crime presents a review of economic scholarly research in the

Harold Winter is Professor of Economics at Ohio University. His previous books

ISBN: 978-1-138-60752-1 (hbk)

Typeset in Times New Roman

And to the memory of my sister Pam (1951–2017) who always went to a

1 Rational crime basics 1

My ﬁrst debt of gratitude goes to my editor Andy Humphries who single-handedly

The rational criminal

The beneﬁt of crime

Becker introduces as a diﬀerent limitation on punishment the “social value of the

Appendix: crime deﬁnitions (FBI Uniform Crime Report, 2009)

A brief primer on empirical analysis

An empirical crime study

Police manpower and crime

Policing technology and crime

Conviction rates and crime

Certainty versus severity of punishment

Some problems with ﬁnes

Fines and wealthy criminals

I emphasized that punishments, to be politically acceptable, must express author-

While this is an eloquent defense of imprisonment over shaming punishments, it hinges

In short, it becomes an empirical issue to determine if shaming punishments deter

Sexual oﬀender registration and notiﬁcation laws

From juvenile to adult

Quality of prison life

Measuring the incapacitation eﬀect

The three-strikes law

The harshness of sanctions

The inequality of equal prison sentences

Does the death penalty deter murder?

From the beginning of the post-moratorium period… certain factors appeared

Death penalty administrative costs

Death penalty and race

This result leads to an interesting follow-up question: is it individual jurors or juries as

Deterrence versus displacement

Gun buybacks and mass shootings

Addiction and drug control

Addiction is deﬁned as a chronic, relapsing disorder characterized by compulsive

Based on this deﬁnition and description of addiction, it is not uncommon to think of

Drug prohibition and violence

The case for legalization?

The ﬁeld of behavioral economics has presented a number of fascinating challenges to

Does eﬃciency matter?

Risk, ambiguity, and expected punishment

In manipulating the certainty of the probability of apprehension, enforcement cam-

Incapacitation, deterrence, and the framing of prison sentences

So what makes this conclusion “interesting”? From an economic perspective, it is

Implicit racial bias

Addiction and impatience

Behavioral versus traditional economics: ﬁnal thoughts

Abortion and the crime rate

Final thoughts: what economists do

1033 Program 16 Italian Collective Clemency Bill 40–41

crime deﬁnitions 9–10 Lojack 87–88

terrorist acts, police presence and 14–15 white-collar crime 27–28

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