Recht und Ökonomie (Law and Economics)

Prof. Dr. Friedrich Schneider Institut für Volkswirtschaftslehre http://www.econ.jku.at/schneider Recht und Ökonomie (Law and Economics) LVA-Nr.: 239.203 SS 2015 (8) Criminal Law [Strafrecht] and Economics of Crime SS 2015 Law & Economics 1 / 44

Content (1-2) (1) Economics of Crime Introduction Crime & Rational Decision Making Deterrence & Optimal Level of Crime (2) Crime Incentives Basics USA: Rates of Crime in 1990s USA: Why Crime Decline in 1990s? (Factors) (3) Risk and Deterrence Basics USA: Empirical Results Draconian Punishments SS 2015 Law & Economics 2 / 44

Content (2-2) (4) Deterrence of Death Penalty Basics Theories of Deterrence How to Measure Death Penalty? Death Penalty: Empirical Evidence Donohue & Wolfers (I) Donohue & Wolfers (II) Dezhbakhsh & Shepherd Conclusion Deterrence Effect of Death Penalty SS 2015 Law & Economics 3 / 44

Crime causes costs: 1. Economics of Crime 1.1. Introduction Economic problem of optimal allocation of resources (e.g. cops, judges, prosecutors, jails). Empirical evidence for influence of economic variables on the frequency of crime. Employment of economic models and econometric techniques to analyse relationship between: Crime; Deterrence [ Abschreckung ] sentence [ Gerichtsurteil, Strafe] fine [ Geldstrafe ] / imprisonment [ Gefängnisstrafe, Haft ] ; and economic situation. SS 2015 Law & Economics 4 / 44

1. Economics of Crime 1.2. Crime & Rational Decision Making Criminal's rational perspective: Expected punishment [ Bestrafung, Strafe ] (EP) is decisive. EP equals: probability [ Wahrscheinlichkeit ] of punishment multiplied by size of imposed punishment EP = q * P, where q = probability of punishment being imposed, and P = cost of punishment to the criminal (in monetary terms). SS 2015 Law & Economics 5 / 44

1. Economics of Crime 1.2. Crime & Rational Decision Making (cont.) Comparison of expected punishment with expected private benefit of crime: With risk neutrality & rationality Crime will be committed if and only if private benefit exceeds expected punishment. Alternative criminal's rational perspective: If (expected) utility [ Nutzen ] from crime is larger than (expected) utility from alternative time use like legal work crime will be committed. SS 2015 Law & Economics 6 / 44

1. Economics of Crime 1.3. Deterrence & Optimal Level of Crime Crime deterrence [ Abschreckung ] punishment (EP): by increasing expected Raising the punishment, and / or raising the probability of punishment. BUT: Law of increasing opportunity costs / diminishing returns [ Opportunitätskosten / abnehmende Erträge ] : Each (constant) increment of punishment or of probability of punishment costs more and more in terms of expenditures on law enforcement [ Gesetzesvollzug, Strafverfolgung ]. SS 2015 Law & Economics 7 / 44

1. Economics of Crime 1.3. Deterrence & Optimal Level Crime (cont.) Costs of deterrence & law of diminishing returns optimal level of crime is where: Marginal costs of deterrence are equal to their marginal revenue (return). In all countries the optimal level of crime is greater than zero! crime is a normal social phenomenon whose complete abolishment by government is neither possible nor desirable. (Gary Becker, 1968). SS 2015 Law & Economics 8 / 44

2. Crime Incentives 2.1. Basics Negative incentives regarding reduction of crime: Increase probability of sentencing, and / or increase imprisonment or fines. Positive incentives regarding reduction of crime: Increase wages; reduce unemployment; increase social benefits [ Sozialleistungen, -hilfen ], and / or improve rehabilitation [ Resozialisierung ]. SS 2015 Law & Economics 9 / 44

2. Crime Incentives 2.1. Basics (cont.) Many studies showing a variety of influences of variables follow from the economic model of crime: Unemployment; job availability; inequality in income (distribution); police intensity; risk of sanction [ Strafmaßnahme ] ; demography (age, different nationalities, racial composition ); drug consumption; and migration. SS 2015 Law & Economics 10 / 44

2. Crime Incentives 2.2. USA: Rates of Crime in 1990s Experts predicted an explosion in crime in the USA in the early and mid-1990s. But: Why did crime rates (unexpectedly) fall in the USA during the 1990s? 1991 2001: Homicide [ Tötungsdelikte ] rates plunged by 43 %. FBI crime index: violent crime fell by 34 %; property crime [ Eigentumsdelikte ] fell by 29 %. Changes in various crime categories & regions see next 2 slides. SS 2015 Law & Economics 11 / 44

Table 2.1. Trends in specific categories of crime, USA, periods 1973-1991 & 1991-2001 (in %). Source: Levitt, Steven 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(1), p. 166. SS 2015 Law & Economics 12 / 44

Table 2.2. Changes in Crime Rates for Different Population Groups, USA, period 1991-2011 (in %). Source: Levitt, Steven 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(1), p. 167. SS 2015 Law & Economics 13 / 44

2. Crime Incentives 2.3. USA: Why Crime Decline in 1990s? Reduction of crime rates in USA during the 1990s Article by S. D. Levitt: Understanding Why Crime Fell in the 1990s: Four Factors that Explain the Decline and Six that Do Not (2004). S. D. Levitt identified in his study: Four major factors responsible for reduction; and. six factors that played little / no role. Overview of factors see next slides. SS 2015 Law & Economics 14 / 44

2. Crime Incentives 2.3.1. Factors Explaining US-Decline Four major factors responsible for reduction (Levitt): (1) Increase in number of police forces in the USA. Number of police forces increased by 50,000 60,000 in 1990s. If elasticity of crime with respect to the number of police forces is 0.40 the increase in police forces 1991 2001 can account for a crime reduction of 5 6 %; can explain between 1/5 & 1/10 of overall decline in crime. Most commonly used estimate of costs of crime to victims = roughly USD 500 billion annually in the early 1990s. SS 2015 Law & Economics 15 / 44

2. Crime Incentives 2.3.1. Factors Explaining US-Decline (cont.) (2) Increased number of prison inmates [ Insassen, Häftlinge ]. By 2000 more than 2 million individuals were imprisoned at any point in time; roughly 4 times the quantity of 1972; more than half of that prison population growth occurred in the 1990s. Theory linking increased imprisonment to reduced crime two effects: Incapacitation [ Unfähigkeit ] effect: they are unable to commit further crimes. by imprison offenders, Deterrence ["Abschreckung ] effect: increased threat of punishment induces forward-looking criminals not to commit crimes they otherwise would find attractive. SS 2015 Law & Economics 16 / 44

Figure 2.1. Adult imprisonment rate, USA, period 1950-2000 (adults imprisoned per 100,000 US-residents) Source: Levitt, Steven 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(1), p. 178. SS 2015 Law & Economics 17 / 44

2. Crime Incentives 2.3.1. Factors Explaining US-Decline (cont.) (3) Reduced consumption of crack / other drugs. Crack cocaine ["Crack-Kokain"] facilitated sale of cocaine by the dose for a retail price of USD 5 10. The trade proved highly lucrative, leading to violence as rival gangs competed to sell the drug. Homicides NY City in 1988: > 25 % of these homicides were crack-related; almost all of them involved crack distribution. As crack consumption declined from 1991 to 2001, young black males experienced a homicide [ Tötungsdelikte ] decline of 48 %, older black males of 30 %, young white males of 42 % and older white males of 30 %. SS 2015 Law & Economics 18 / 44

2. Crime Incentives 2.3.1. Factors Explaining US-Decline (cont.) (4) Legalized abortion [ Schwangerschaftsabbruch ]. Decision of US Supreme Court in January 1973 ( Roe vs. Wade ) legalization of abortion in 1973 + 18 years later = year 1991 [also mentioned in course chapter two]. Theory = Unwanted children are at greater risk for crime; and legalized abortion leads to a reduction in the number of unwanted births. Extrapolating estimates of Donohue & Levitt (2001) for period 1991 2000 legalized abortion is associated with 10 % decline in homicide, property crime & violent crime rates account for 25 30 % of observed crime reduction in 1990s. would SS 2015 Law & Economics 19 / 44

2. Crime Incentives 2.3.2. Factors Not Explaining US-Decline Six Factors that played little / no role (S. D. Levitt): (1) Strong US-economy in 1990s. Real GDP per capital grew by almost 30 % 1991 2001. Unemployment rate fell from 6.8 % (1991) to 4.8 % (2001). BUT: Violent crime does not vary systematically with unemployment rate. (2) Better strategies of police. Lack of empirical data. New York: Innovator in policing practices + high drop in crime rates BUT: NY police force grew 1991 2001 by 45 %. SS 2015 Law & Economics 20 / 44

2. Crime Incentives 2.3.2. Factors Not Explaining US-Decline (cont.) (3) Demographic changes. In 2001, people over age of 65 had per capita arrest rates approximately 1/50 the level of 15 19 year-olds. BUT: Number & share of 15 24 year-olds increased age group has a greatly elevated involvement in crime. (4) Gun control laws [ Waffenrecht, -gesetze ]. Stricter requirements for background checks before a gun is sold BUT: Black market for arms. Gun buy-back programs BUT: criminals unlikely participate. Bans on handgun acquisition / ownership. SS 2015 Law & Economics 21 / 44

2. Crime Incentives 2.3.2. Factors Not Explaining US-Decline (cont.) (5) Laws enabling carrying of concealed [ verborgene ] weapons. Theory = armed victims raise costs faced by potential criminal. BUT: Empirical data show little basis for impact on crime. (6) Increased use of death penalty [ Todesstrafe ]. In 1980s, a total of 117 prisoners were put to death in USA; that number more than quadrupled to 478 in the 1990s. BUT: Any deterrent effect from death penalty cannot explain decline in other crimes. BUT: Rarity of executions & long delays in doing so. SS 2015 Law & Economics 22 / 44

3. Risk and Deterrence 3.1. Basics Rationality assumed probability of sentence (= fine or imprisonment) relevant. Individuals may be: risk averse [ risikoavers, risikomeidend ], risk neutral [ risikoneutral ], or risk lovers [ risikofreudig ] ; depending on their economic and sociological situation. SS 2015 Law & Economics 23 / 44

3. Risk and Deterrence 3.1. Basics (cont.) Important: Product of probability of sentence (q) and (expected) sentence (P) q times P is relevant! Increasing P and reducing q is in general more efficient. Fines [ Geldstrafen ] are in general preferred to imprisonment, because being more efficient. Costs of imprisonment for society: Labour resources lost plus costs of jailing. SS 2015 Law & Economics 24 / 44

3. Risk and Deterrence 3.1. Basics (cont.) Imprisonment [ Gefängnisstrafe, Haft ] : If individuals are risk averse, raising imprisonment terms allows to lower probability of sanctioning more than proportionally. Expected prison terms fall, thus costs to society decrease. If individuals are risk loving, raising imprisonment terms allows to lower probability of sanctioning less than proportionally. Expected prison terms rise, thus costs to society increase. SS 2015 Law & Economics 25 / 44

3. Risk and Deterrence 3.2. USA: Empirical Results Some empirical Results according to US-studies (from the year 2005). (1) Estimated costs of reducing property crimes [ Eigentumsdelikte ] by one percent: More police officers: USD 34.0 million in a district (state); more prison sentences: USD 3.2 million (court costs); longer prison sentences: USD 2.4 million (prison costs). SS 2015 Law & Economics 26 / 44

3. Risk and Deterrence 3.2. USA: Empirical Results (cont.) (2) Elasticity of property crimes [ Eigentumsdelikte ] (abbreviated PC ): A 10 % increase of police officers reduces PC by 3.2 %; rate of imprisonment reduces PC by 4.8 %; length of imprisonment reduce PC by 8.5 %; increase in unemployment increases PC by 4.6 %. Larger impact on burglary and robbery; smaller impact on theft. SS 2015 Law & Economics 27 / 44

3. Risk and Deterrence 3.3. Draconian Punishments Draconian [ drakonisch, hart ] punishments may not be appropriate because: Criminals lack income or wealth; judges may hesitate to convict (death penalty!); increased litigation leading to higher legal costs; of perverse incentives: steal bread and shoot baker; of disrespect for the law being unjust. SS 2015 Law & Economics 28 / 44

4. Deterrence of Death Penalty 4.1. Basics Background to death penalty / capital punishment [jeweils: Todesstrafe ] in the USA: Article New York Times (Nov. 18, 2007): Does death penalty save lives? A New Debate. http://www.deathpenaltyinfo.org/ Some facts for the USA (time period 1946-08/2011): USA 1946-1997: Total 1,885 executions or 1 execution per 320 reported homicides [ Tötungsdelikte ]. USA 1976-2003: 1 execution per 1,000 reported homicides. Texas 1976-08/2011: Total 472 executions. SS 2015 Law & Economics 29 / 44

4. Deterrence of Death Penalty 4.1. Basics (cont.) Further US-facts (USA; number of persons; time range 1997-2012): USA / Year 1997 2003 2009 2012 Population (in Million) 267.78 290.79 307.01 313.91 Murder and non-negligent manslaughter / Homicides 18,208 16,528 15,399 14,827 Death sentences 266 151 118 78 Inmates on death row [ Insassen im Todestrakt ] 3,335 3,374 3,173 3,146 Total Executions USA 74 65 52 43 Executions Texas (in % of total) 37 (50.0 %) 24 (36.9 %) 24 (46.2 %) 15 (34.9 %) Sources: Uniform Crime Report of Federal Bureau of Investigation (various years); Death Penalty Information Center (various years). SS 2015 Law & Economics 30 / 44

4. Deterrence of Death Penalty 4.2. Theories of Deterrence Economical theory: Raise price for murder for criminals less murder. Behavioural (psychological) theory: Small likelihood is treated as zero probability; or low frequency with great publicity deters. Sociological theory: State-sanctioned executions reduce value of life; implies: brutalisation effect leads to more homicides [ Tötungsdelikte ]. SS 2015 Law & Economics 31 / 44

4. Deterrence of Death Penalty 4.3. How to Measure Death Penalty? Measures for death penalty / capital punishment: Binary variable death penalty law? Y/N. Persons sentenced to death (always annual data). Persons executed. Persons sentenced to death (per 100,000 inhabitants). Persons sentenced to death (per total sentences). Persons executed (per 100,000 inhabitants). Persons executed (per 1,000 prisoners). Persons executed (per prisoners on death row). Persons on death row. SS 2015 Law & Economics 32 / 44

4.4. Death Penalty: Empirical Evidence 4.4.1. Donohue & Wolfers (I) Study by J. J. Donohue & J. Wolfers (D&W): Uses and Abuses of Empirical Evidence in the Death Penalty Debate (12/2005). They surveyed time series [ statistische Zeitreihen ] of executions and homicides in the USA; compared the USA with Canada & compared non-death penalty states with executing states; analyzed the effects of judicial experiments (comparing affected states with unaffected states); surveyed the state panel data since 1934; assessed a range of instrumental variables approaches; and analyzed two state-specific execution moratoria [ befristete Einstellungen / Aussetzungen ]. SS 2015 Law & Economics 33 / 44

4.4. Death Penalty: Empirical Evidence 4.4.1. Donohue & Wolfers (I) (cont.) Results of D&W-study (12/2005): (1) Aggregate time series for the USA showed no clear correlation between homicides and executions in the 20 th century: 1900-1910: Roughly no correlation. 1910-1920: Executions drastic down, homicides tended up. 1920-1940: Executions & homicides increased. 1940-1960: Executions & homicides decreased. 1960-1970: Executions down, homicides drastic up. 1972-1976: Moratorium on executions, homicides up. 1976-1990: Executions up, homicides remained high. 1990-2000: Executions up, homicides drastic down. SS 2015 Law & Economics 34 / 44

4.4. Death Penalty: Empirical Evidence 4.4.1. Donohue & Wolfers (I) (cont.) (2) Comparison of six US-States without death penalty during analyzed period (1960-2000) with rest of country: Six US-States: AK, HI, ME, MI, MN & WI. Rest of country: [ Wiedereinführung ] in all other states. Result of comparison (D&W): Abolition or moratorium and reinstatement Very similar movement in the six US-States compared to the overall USA-figures; high positive correlation between the two time series. Conclusion: There must be other factors at work! SS 2015 Law & Economics 35 / 44

4.4. Death Penalty: Empirical Evidence 4.4.1. Donohue & Wolfers (I) (cont.) Main conclusions of D&W-study (12/2005): (1) None of the approaches suggested that the death penalty has large effects on the murder rate: When D&W compared death penalty states with non-death penalty states, they found no evidence of any effect of executions on murder rates, either up or down. SS 2015 Law & Economics 36 / 44

4.4. Death Penalty: Empirical Evidence 4.4.1. Donohue & Wolfers (I) (cont.) Main conclusions of D&W-study (12/2005): (cont.) (2) Year-to-year movements in homicide rates were large, and the effects of even major changes in execution policy were barely detectable. (3) The U.S. data show not clearly whether the death penalty has a deterrent or anti-deterrent effect. SS 2015 Law & Economics 37 / 44

4.4. Death Penalty: Empirical Evidence 4.4.2. Donohue & Wolfers (II) Survey by J. J. Donohue & J. Wolfers (D&W): The Death Penalty: No Evidence for Deterrence (2006). Main results of D&W (2006): (1) The view that the death penalty deters is still the product of belief, not evidence. (2) On balance, the evidence suggests that the death penalty may increase the murder rate although it remains possible that the death penalty may decrease it. SS 2015 Law & Economics 38 / 44

4.4. Death Penalty: Empirical Evidence 4.4.3. Dezhbakhsh & Shepherd Study by H. Dezhbakhsh & J. M. Shepherd (D&S): The Deterrent Effect of Capital Punishment: Evidence from a Judicial Experiment (2003). D&S focus in their before-and-after comparisons of murder rate in the USA only on US-States that abolished or adopted death penalty (pre- and postmoratorium [ befristete Einstellung / Aussetzung ] data; time period 1960-2000): SS 2015 Law & Economics 39 / 44

4.4. Death Penalty: Empirical Evidence 4.4.3. Dezhbakhsh & Shepherd (cont.) Many factors that affect crime (e.g. law enforcement, judicial, demographic and economic variables) change only slightly over a short period of time. Fast changes in a state s murder rate following a change in its death penalty law can be attributed to the legal change. Death penalty moratoria began and ended in different years in different states. E.g. Rhode Island suspended death penalty in 1972, reinstated it in 1977, and abolished it in 1984. SS 2015 Law & Economics 40 / 44

4.4. Death Penalty: Empirical Evidence 4.4.3. Dezhbakhsh & Shepherd (cont.) D&S-results regarding before-and-after comparisons of murder rate in USA (1 year; 2 & 3 year averages): Abolition: 10-21.9 % increase in homicides (mean). Reinstatement [ Wiedereinführung ] : 4.1-6.4 % decrease in homicides (mean). BUT: Control group of US-States that had no change (regarding death penalty) showed very similar effects! SS 2015 Law & Economics 41 / 44

4.4. Death Penalty: Empirical Evidence 4.4.3. Dezhbakhsh & Shepherd (cont.) BUT: D&S-results are not very robust: (1) When introducing year-fixed-effects into the D&Sstudy, the effect of executions on homicides becomes statistically insignificant! (2) D&S use absolute numbers of executions per year heavy influence of Texas. Omission of Texas has same effect as above! (3) Using executions per 1,000 prisoner or per 100,000 residents again has same effect as above! SS 2015 Law & Economics 42 / 44

4.5. Conclusion Deterrence Effect of Death Penalty Empirical evidence is (very) inconclusive. Thus it cannot be employed to justify death penalty / capital punishment [jeweils: Todesstrafe ]. Should one turn to more philosophical reasons and justifications? E.g. government must act on the basis of a moral obligation since inactivity ( omission ) may endanger its citizens? SS 2015 Law & Economics 43 / 44

References Mentioned references: Dezhbakhsh, Hashem, and Joanna M. Shepherd (2004), The Deterrent Effect of Capital Punishment: Evidence from a Judicial Experiment, Working Paper No. 18, URL (accessed Dec. 4, 2005): http://law.bepress.com/cgi/viewcontent.cgi?article=1017&context=alea Donohue, John, and Justin J. Wolfers (2005), Uses and Abuses of Empirical Evidence in the Death Penalty Debate, Stanford Law Review, Vol. 58:79 (December 2005), pp. 791-845. Donohue, John, and Justin J. Wolfers (2006), The Death Penalty: No Evidence for Deterrence, The Economists' Voice, 3:5, art. 3. Levitt, Steven 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(1): 163-190. Liptak, Adam, Does Death Penalty Save Lives? A New Debate, internet-article on The New York Times Online (18-11-2007), URL: https://www.nytimes.com/2007/11/18/us/18deter.html?pagewanted=all SS 2015 Law & Economics 44 / 44