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Prof. Dr. Friedrich Schneider Institut für Volkswirtschaftslehre http://www.econ.jku.at/schneider

Prof. Dr. Friedrich Schneider Institut für Volkswirtschaftslehre http://www.econ.jku.at/schneider . Recht und Ökonomie ( Law and Economics ). LVA-Nr.: 239.203 W S 2012/13 ( 7 ) Criminal Law ( Strafrecht ). Overview. Introduction Rational Decision Making Market for Crime

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Prof. Dr. Friedrich Schneider Institut für Volkswirtschaftslehre http://www.econ.jku.at/schneider

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  1. Prof. Dr. Friedrich Schneider Institut für Volkswirtschaftslehre http://www.econ.jku.at/schneider Recht und Ökonomie (Law and Economics) LVA-Nr.: 239.203 WS 2012/13 (7) Criminal Law (Strafrecht) Law and Economics

  2. Overview • Introduction • Rational Decision Making • Market for Crime • Incentives • Risk and Deterrence • Further Topic: Death Penalty Law and Economics

  3. 1. Introduction • Crime causes costs: • economic problem of optimal allocation of resources. • Empirical evidence for influence of economic variables on the frequency of crime. • Employ economic modelling and econometric techniques to analyse relationship between: • crime, • deterrence (fine/sentence), and • economic situation. Law and Economics

  4. 2. Rational Decision Making • If: (expected) utility (EU) from crime > (expected) utility (EU) from alternative time use (like legal work!) • Crime will be committed when EU > 0 • EU = p * U(Yi – f) + (1 – p) * [U(Yi) – U(YL)] , where: • p … probability of sentencing; • U … von Neumann-Morgenstern utility function ∂U(.) / ∂Y>0 ; • Yi … income from illegal action, • YL … income from legal action, • f … fine (or imprisonment) in case of sentencing. Law and Economics

  5. 3. Market for Crime • Equilibrium level of crime is determined by • Supply (S): positive relationship between π and C: the higher the profit (π) resulting from criminal act (C), the higher the incentive to commit the crime. • Demand (D): negative relationship between π and C: the more criminal acts, the higher the sensitivity of (potential) victims, profits of criminal acts decline. Law and Economics

  6. 3. Market for Crime (cont.) • 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). • Optimal level of crime is where: • marginal cost of deterrence are equal to their marginal revenue (return). Law and Economics

  7. 3. Market for Crime (cont.) • Consequences of (equal) increases in wealth (or income): • more protective measures, D declines. • Consequences of increases in inequality: • D, and possibly also S, increase. • Total effect: • crime may increase despite more protection! Law and Economics

  8. 4. Crime Incentives • Negative incentives: • increase probability of sentencing, and • increase sentences or fines. • Positive incentives: • increase wages, • reduce unemployment, • increase social benefits, and • improve rehabilitation. Law and Economics

  9. 4. Crime Incentives (cont.) • Why did crime rates (unexpectedly) fall in the USA during the 1990s? • Major factors according to the study of Levitt 2003: • increase in the police force, • more inmates in jails, • reduced consumption of crack/other drugs, • legalisation of abortions, and • prevention programs. Law and Economics

  10. 4. Crime Incentives (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 sanctioning, • demography (age, different nationalities, ‘racial composition’), • drug consumption, and • migration. Law and Economics

  11. 5. Risk and Deterrence Probability of sanction, fine, and imprisonment • Individuals may be • risk averse, risk neutral or risk lovers, depending on their economic and sociological situation. • Important: product of probability of sanction (p) and (expected) sentence (f)  p times f is relevant! • Increasing f and reducing p is, in general, more efficient. • Fines are, in general, preferred to imprisonment, again being more efficient. • Labour resources lost plus cost of jailing. Law and Economics

  12. 5. Risk and Deterrence (cont.) Imprisonment: • If individuals are risk averse, raising imprisonment terms allows to lower probability of sanctioning more than proportionally. • Expected prison terms fall, thus cost 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 cost to society increase. Law and Economics

  13. 5. Risk and Deterrence (cont.) Some Empirical Results according to U.S. studies from 2005: • Estimated cost of reducing property crime by 1 %: • 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). Law and Economics

  14. 5. Risk and Deterrence (cont.) Some Empirical Results according to U.S. studies from 2005: • Elasticities of property crimes (pc): a 10 % increase of … • police officers reduces pc by3.2 %; • rate of imprisonment reduces pc by4.8 %; • length of imprisonment reduces pc by8.5 %; • increase in unemployment increases pc by 4.6 %. • Larger impact on burglary and robbery. • Smaller impact on theft. Law and Economics

  15. 5.1. Risk and Deterrence: Draconian Punishments Draconian punishments may not be appropriate, because: • criminals lack income or wealth; • judges may hesitate to convict (death penalty!); • increased litigation leading to higher legal cost; • of perverse incentives: steal bread and shoot baker; • of disrespect for the law being ‘unjust’. Law and Economics

  16. 6. Economics of Crime - Further Topic: Death Penalty • Limitations to economic analyses of crime. • Capital punishment and deterrence. • Addictive drugs and crime. • Criminalization of addictive drugs. • Plus: • in-depth analyses of all of the (economic) factors described above influencing criminal activities. Law and Economics

  17. 6. Further Topic: Death Penalty (cont.) • Article in the NY Times (Nov. 18, 2007): • Does death penalty save lives? (source: https://www.nytimes.com/2007/11/18/us/18deter.html?pagewanted=all) • Some facts: USA, 2003: • 16,500 homicides; • 144 death sentences; • 3,400 inmates on death row; • 65 executions. Law and Economics

  18. 6. Further Topic: Death Penalty6.1. Death Penalty as Deterrent? ‘Survey’ by DONOHUE & WOLFERS (2006) • Main results: • "The view that the death penalty deters is still the product of belief, not evidence ... On balance, the evidence suggests that the death penalty may increase the murder rate." • When D&W compared death penalty states with non-death penalty states, they found no evidenceof any effect of executions on murder rates, either up or down. Law and Economics

  19. 6. Further Topic: Death Penalty6.2. Death Penalty and Theories of ‚Deterrence‘ • Economic theory: • raise price for murder. • Behavioural (psychological) theory: • small likelihood is treated as zero probability, or • low frequency with great publicity deters. • Sociological theory: • executions reduce value of life, implies ‘brutalisation’ leads to more homicides. Law and Economics

  20. 6. Further Topic: Death Penalty6.3. US History of Murders & Executions Results from Donohue and Wolfers (2006): • Aggregate time series show no clear correlation between homicides and executions (20th century): • 1900-1910: no correlation. • 1910-1920: executions down, homicides up. • 1920-1940: both increase. • 1940-1960: both decrease. • 1970-1975: moratorium on executions, homicides up. • 1975-1990: executions up, homicides remain high. • 1990-2000: executions up, homicides down. Law and Economics

  21. 6. Further Topic: Death Penalty6.4. Comparison of six US-States without Death Penalty in USA Results from Donohue and Wolfers (2006): • Period analyzed: 1960 – 2000. • Abolition or moratorium and reinstatement in all other states. • Result: very similar movement in the six States to the USA overall figures, high positive correlation between the two time series! • Conclusion: there must be other factors at work! Law and Economics

  22. 6. Further Topic: Death Penalty6.5. Are other Factors important? • DEZHBAKHSH & SHEPHERD (2004) focus in their before/after comparison only on States that abolished or that adopted death penalty: • abolition: 10 – 20 % increase in homicides; • reinstatement: 5 – 10 % decrease in homicides. • But: ‘control group’ of States that had no change showed very similar effects! • No difference to States that experienced changes! Law and Economics

  23. 6. Further Topic: Death Penalty6.6. How to Measure ‘Death Penalty’? Measures for ‘death penalty’: • 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. Law and Economics

  24. 6. Further Topic: Death Penalty6.7. Executions: Further Results Not very robust results: • When introducing year-fixed-effects into the DEZHBAKHSH & SHEPHERD (2004) study, the effect of executions becomes statistically insignificant! • D. & S. use absolute numbers of executions –heavy influence of Texas: omission of Texas has the same effect as above! • Using executions per 1,000 prisoner or per 100,000 residents again has the same effect! Law and Economics

  25. 6. Further Topic: Death Penalty 6.8. Conclusion on Deterrence Effect of Death Penalty • Empirical evidence is (very) inconclusive. • Thus it cannot be employed to justify ‘death penalty’. • Should one turn to more ‘philosophical’ reasons and justifications? • E.g. the government must act on the basis of a moral obligation since inactivity (‘omission’) may endanger its citizens? Law and Economics

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