The Economics of Crime and Crime Prevention. An act is considered to be a crime either

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1 The following notes provided by Laura Lamb are intended to complement class lectures. The notes are based on Economic Issues: A Canadian Perspective by C.M. Fellows, G. Flanagan, and S. Shedd (1997) and two Statistics Canada articles which are referenced below. The Economics of Crime and Crime Prevention 1. What is a crime? An act is considered to be a crime either Immoral grounds: All modern societies consider murder to be immoral while other activities such as drinking alcoholic beverages, smoking marijuana, betting on horse racing and adultery are not immoral in all societies. Whether any of these activities are criminal typically depends on the morality of the. An illegal behaviour may or may not be immoral. For example, parking in a loading zone is hardly, but is. 2. Crime in Canada: The Daily Statistics Canada Wednesday, July 18, 2007 Crime statistics Canada's overall national crime rate, based on incidents reported to police, hit its lowest point in over 25 years in 2006, driven by a decline in non-violent crime. The national crime rate has decreased by about 30% since peaking in The national homicide rate fell 10%, halting two years of increases. 1

2 In terms of violent crime, rates declined or remained stable in all provinces, except for slight increases in Quebec and Saskatchewan. Similarly, property crime rates declined or remained unchanged in all provinces and territories. Police reported 605 homicides in 2006, 58 fewer than in This resulted in a rate of 1.85 homicides per 100,000 population, 10% lower than in The national homicide rate has generally been declining since the mid-1970s, when it was around 3.0. (Note that the homicide rate in the U.S. is about 7.1 per 100,000 population, almost 4 times higher than in Canada.) While overall violent crime remained stable, most serious violent crimes were on the rise, a situation similar to Police reported 852 attempted murders, 30 more than in 2005 and the second consecutive annual increase. The rate of break-ins in Canada dropped to its lowest level in over 30 years. Since peaking in 1991, the rate has fallen 50%. The rate of counterfeiting currency fell 29% in 2006 on the heels of a 19% decline in 2005, after increasing five-fold between 2001 and The youth crime rate (aged 12 to 17 accused of committing a crime) increased 3% in 2006, the first increase since Violent crime among youth rose 3%, while property crime dropped 3%. "Other" Criminal Code offences, such as mischief and disturbing the peace, were up 9%. Since the introduction the Youth Criminal Justice Act (YCJA) in 2003, the proportion of youth formally charged by police has dropped from 56% in 2002, pre-ycja, to 42% in Total drug crimes increased by 2% in Cannabis offences continued to account for about 60% of all drug offences, and these were down 4%. 2

3 In 2006, possession offences accounted for about three-quarters of all cannabis offences. At the same time, cocaine offences were up 13% and other drug offences, including crystal meth, rose 8%. Cocaine offences have increased by 67% since Available on CANSIM: tables and What are the causes of crime? There are many causes and some are economic. Unrestrained emotions (1991: 33% of 582 homicides were cases where the victims were related to the murderer). While this is not an economic cause, homicide rates tend to rise when the economy is experiencing high unemployment. Why? Property crimes and robberies have the intent of to further economic goals and increase utility. The opportunity cost for a low income individual to commit a crime is low relative to a individual. Thus, leads to criminal activities. The standards and social values of a society are a determinant of crime. This includes i.e. income tax evasion, stealing from an employer, embezzling, etc. 4. What are the costs of crime? It is difficult to measure with accuracy. Why? 3

4 1. 2. It is difficult to attach a monetary cost to a crime, although economics has come up with some skillful ways to estimate the cost of crime. The concept is useful in measuring the cost of crime. Consider of victims and those who are close to the victims. from altering activities due to high likelihood of crime The costs incurred to. of property destroyed or damaged. Production and sale of illegal goods results in. The costs of dealing with crime, i.e. prevention, apprehension, and correction the opportunity cost of the resources used for these activities (production of alternative goods and services). In aggregate, criminal activities lower and crime prevention activities. 5. The economics of crime prevention activities What is the appropriate amount of resources to devote to crime prevention? 4

5 How much should a government spend on crime prevention? Economists use cost-benefit analysis to answer these questions. Crime prevention activities should be increased as long as the. Illustration: Consider the annual benefits and costs of crime prevention activities in a typical Canadian community. One unit of crime prevention describes a composite of police personnel, patrol cars, courthouses, crown prosecutors, judges services, prison costs, etc. Economic cost: the value of the goods and services that resources used in crime prevention activities could have produced if they had not been used for crime prevention. Economic benefit: the value of how much better off the control of crime will make the community, which includes the value of extra days of work, value of property protected, value of the greater personal security, etc. As one might imagine, these benefits are not easy to quantify. Consider the fictional data in the table below: Units of Crime (per year) Total Benefit Benefits and Costs of Crime Prevention Marginal Total Benefits Costs Marginal Costs Total Net Benefits 5

6 We focus on the marginal benefits and costs to make a decision. Additional units of crime prevention are worthwhile as long as marginal benefits exceed marginal costs. What is the optimal level of crime prevention for this community? Complete elimination of crime is not economically justified because at some level of crime prevention, an. 6. Economic analysis to determine whether or not certain activities should be considered illegal Consider the question of legalizing marijuana. Use the supply and demand model to analyse the issue. If marijuana were to be legalized, economics would argue that supply and demand would both change. Supply changes, how? Why? 6

7 Demand changes, how? Why? The legal equilibrium price is and quantity bought and sold is. The answer to the question of legalization is beyond this limited analysis, however, some people contend that there are good economic reasons for legalizing drugs such as marijuana and cocaine or activities such as prostitution. 7. Economic analysis of criminal behaviour Given that criminal acts are often not rational, economics cannot begin to explain criminal behaviour in its entirety. At the same time, economics can provide some insights into criminal behaviour. If one thinks of a criminal activity as a business activity, then it is reasonable to view the decision to commit a crime as an outcome of. If the revenue is greater than the cost of committing a crime, then. Revenues (benefits) of crime:. Costs of crime: 7

8 . Explicit costs may include the cost of tools required to break and enter. Implicit costs include the. Note that opportunity costs are lower for someone who is unemployed than someone with a well paying job. By this argument, is a form of crime prevention. White collar crime typically involves individuals from high income groups, implying that the revenue from criminal behaviour must be to warrant a criminal act. Two concepts are relevant to the decision to commit a crime: 1. psychic income (costs): 2. risk and uncertainty: 8