Economics 160

1. Economics 160 Lecture 5 Professor Votey Law Enforcement Effectiveness: Productivity Votey 2, Notes: pp. 30-18

2. The Science of Decisionmaking Methodology:The Economic Paradigm Recall 3 Steps(Notes, pp 3,4) 1. Specification: Specify the Alternative States of the World 2. Valuation: Establish a Value System, e.g. Prices 3. Optimization: Picking the “Best” Solution Profit Maximization, Cost Minimization

3. Minimizing the Net Social Costs of Crime: An Application of Economic Decisionmaking The Tool: Some Form of Cost/Benefit Analysis Costs Social Costs of Crime (SC) Costs to Victims (VC) Control Costs (CC) Offenses (Crime Level) OF* Notes, p. 4 Minimum Social Cost of Crime

4. Minimizing the Net Social Costs of Crime: An Application of Economic Decision-making The Tool: Some Form of Cost/Benefit Analysis We referred to: E. J. Mishan, Cost-Benefit Analysis, Ch. 3, in REFERENCES (RBR)* Costs Social Costs of Crime (SC) VC Costs to Victims Control Costs (CC) Offenses (Crime Level) OF* Minimum Social Cost of Crime

5. *Ed Mishan, an English economist is a well known figure to the older members of the Econ Department, having been an academic visitor here on at least two occasions (the two during my time here which began in Fall 1966). He is one of the internationally known economists who played a role in developing the economic science behind the huge infrastructure investments made during the Great Depression that created such enormous projects as the Hoover Dam on the Colorado River. That same science would form the basis for any public projects today that might be undertaken to create jobs and repair U. S. infrastructure as has been recently proposed. Since those days, there has been much criticism of such investments, mostly by individuals who believe that any investments by society should be limited to the private

6. sector since they believe only markets can lead to efficient outcomes. Interestingly, the Hoover Dam, arguably the largest public project undertaken by any country up to that time, was completed under budget and ahead of schedule. There have been many criticisms of such fiscal policy stimulants as originally advocated by the British economist John Maynard Keynes. They do take time to work and only seem to work markedly on a massive scale. Our economy did not fully recover during the 1930’s, but the policy was certainly vindicated by our participation in WW II, when we put 16,000,000 people to work in the military while going from a third rate to the greatest military establishment in the world with a two ocean navy and an air force second to none, both of which we continued to maintain following the war, while simultaneously paying for the rebuilding of the economies of both our allies and enemies with Marshall Plan Aid,and while paying off our own debt that we undertook to fight the war.

7. Minimizing the Costs of Crime

8. Minimizing the Costs of Crime Objective: Min SC = VC + CC Notes, p 5

9. Minimizing the Costs of Crime Objective: Min SC = VC + CC The Logic: The minimum social cost of crime is the smallest sum We could realize, of victim costs plus the costs of crime control. If we minimize the costs of a “BAD”, we have more of our resources left to spend on “GOODS”.

10. Recall from Lecture 1 the circular flow diagram that represented the interacting system of Crime Generation and Control Text Reference: Economics of Crime Control, Chapter 9 and in Notes, p13

11. Economic Notions of Productivity • Consider A Steel Mill – an example from heavy industry • Resources: • Raw Materials: Iron Ore, Coal, Limestone • Labor: Variety of Skills • Capital: Blast Furnace, Oxygen Furnace Rolling Mills, Plating Mills • Technology: Means of Linking Inputs • Output: Iron, Finished Steel • How does one make a Reasonable Analogy between a typical production process and the Criminal Justice System? • Next: Conceiving of Outputs

12. The Criminal Justice System • Theory • 1. Basis for Defining/Identifying Outputs • A Schematic • 1. Functions • 2. Stages of Operation • 3. Operating Entities • 2. Basis for Evaluating Effectiveness • Empirical Evidence

13. Notes, p 14, Figure 2.2 Criminal Justice System: The Real World Process Input OF Stage 1 Function Law Enforcement POLICE FORCE Operating Entity Produces Prosecution Stage 2 ARRESTS DA COMPLAINTS Adjudication COMPLAINTS Stage 3 COURTS INDICTMENTS Stage 4 Corrections or Punishment CONVICTION (guilty) DISMISSAL (not guilty) INPUTS/ OUTPUTS JAILS,PRISON,PROBATION ? RELEASE (PAROLE)

14. How Good is the output analogy in cases of non-market decision making? Consider other Public Service Industries: • Education - What is the output? • Number of Students ? - or are these inputs? • Number of Graduates? • Hospitals - What is the Output? • Number of Patients ? • Again, this is an input • Lives Saved? • For how long? • What determines hospitals’ rankings?

15. An Aside - about the past • Physical Outputs in a Command Economy – • How are they measured? • A story from? George Karcz • Or maybe Doug Morgan • About Light Fixtures

16. What did we decide was the proper social objective with respect to CRIME? Minimizing the Social Cost

17. Minimizing the Social Cost • What does this mean in terms of productivity?

18. Minimizing the Social Cost • What does this mean in terms of productivity? • Reducing Crime Numbers or Seriousness (or both)

19. Minimizing the Social Cost Notes, p.5 • Recall: Social Cost Minimization implies: • Min SC = VC + CC i.e., Victim Costs + Control Costs • Irrespective of the values we place on individual offenses, as long as they are positive,Social Cost Minimization requiresReducing CrimeNumbers or Seriousness

20. Minimizing the Social Cost • Recall: Social Cost Minimization implies: • Min SC = VC + CC i.e., Victim Costs + Control Costs • Irrespective of the values we place on individual offenses, as long as they are positive,Social Cost Minimization requiresReducing Crime Numbers or Seriousness or Reducing Control Costs

21. Minimizing the Social Cost • Recall: Social Cost Minimization implies: • Min SC = VC + CC i.e., Victim Costs + Control Costs • Irrespective of the values we place on individual offenses, as long as they are positive, Social Cost Minimization requires Reducing Crime Numbers or Seriousness or Reducing Control Costs • Consider the Circular Flow Process: (again)

22. Minimizing the Social Cost • Irrespective of the values we place on individual offenses, as long as they are positive,Social Cost Minimization requiresReducing Crime Numbers or Seriousness (or control costs) • Recall: Social Cost Minimization implies: • Min SC = VC + CC i.e., Victim Costs + Control Costs • Consider the Circular Flow Process: (again) Notes, p. 5

23. Minimizing the Social Cost • Recall: Social Cost Minimization implies: • Min SC = VC + CC i.e., Victim Costs + Control Costs • on individual offenses, as long as they are positive, Social Cost Minimization requires Reducing Crime Numbers or Seriousness (or both) • Consider the Circular Flow Process: (again) Irrespective of the values we place Victim Costs +

24. Looking at the Circular Flow Process, One observes thatArrests and Offensesseem tomove together • Separating the Effects • Resort to the Economic Paradigm and • Economic Decision Theory • Appeal to the approach of • The Utilitarians • Jeremy Bentham - the father of . . . • Modern Economic Decision Theory • Evaluating Results Based on Expected Net Benefits

25. What we are trying to do at this point? Find out what works to control crime. But we want to find out the BEST way, optimization, i.e. determining Best Policy It is great to have a theory It is better to have a theory that we know works. With appropriate research a theoretical model becomes a policy model This work facilitates the implementation of the Economic Paradigm

26. Economic Decision Theory in a Nutshell • Expected Net Benefits (of any action): • Expected Net Benefits = Expected Benefits - Expected Costs E(NB) = E(B) - E(C) • In terms of value:the Value of the Expectation = $B x P(B) - $C x P(C) • The Basis for: • The decision from the potential criminal’s point of view? And • The logical counter policy from Society’s point of view? • These are two sides of the same coin

27. Working within the framework of the Criminal Justice System • Bentham’s focus: “Pain” - the institutional counterpart: • Punishment via the system of Corrections • Enlarging the Expectation: Increase the likelihood of pain • We call this combination of activities Deterrence • The Criminal Justice System: is involved at every stage • Raising the expected cost implies:$C x P(C) = P(Arrest) x P(Conv|Arrest) x P(Jail|Conv) x $Jail • Each Stage contributes to the reduction inCRIME

28. Criminal Justice System Measures of Output • Quantity Measures • A. The number of Arrests • Made on basis of probable cause • B. Arrest Ratio(a relative measure) • = AR = Arrests / Offenses • Was declining in 1960’s and ‘70’s for U.S. and California • Q. Do Arrests deter crime? • Sjoquist, American Economic Review (1973) – in References • San Diego • Problem: Arrests may not be best measure

29. Criminal Justice System Measures of Output (-cont.) • Quality Measures • A. Clearances (an absolute measure) • crimes cleared by arrest = CL • The last burglar - an example • B. Clearance Ratio (a relative measure) • = CR = Clearances / Offenses • Problems with the Clearance Ratio • System Quality • A. Convictions (an absolute measure) • Outcome determined in a court of law

30. Criminal Justice System Measures of Output (-cont.) • B. Conviction Ratio (a relative measure) • CR =Felony Convictions / Offenses(sometimes CR) • Other Measures • A. Police Ratio • = Complaints (filed in courts) / Offenses • measures combined quality of Police & DA efforts • B. Complaints Ratio • = Complaints (filed w/DA) / Arrests • measures quality of Police efforts by DA

31. Output Measures Compared for Homicide in California

32. What was happening to felony offense rates in California and the U. S. ? Text, p 65

33. The Decline of Criminal Justice Effectiveness

34. The Effect of Increasing Expenditures for Law Enforcement in California and the U. S.

35. How Do We Use Output Measures to Evaluate the System?EconomicProduction Theory Output Case of: Constant Returns to Scale Fixed Proportions Inputs Notes, Fig.2.3, p.16

36. Economic Production Theory Applied to Law Enforcement CL Case of: Varying Proportions CL Production: CL = f( OF, L) Assumes the load on the System (offenses) is held fixed OFFENSES (load on the System) RESOURCES (labor) An example of Diminishing Returns L What if we hold Resources Fixed and Increase Offenses? Notes, Fig. 2.5, p 17

37. Economic Production Theory Applied to Law Enforcement CL Case of: Varying Proportions CL Production: CL = f( OF, L) Assumes System Resources are held fixed while offenses vary OFFENSES (load on the System) RESOURCES (labor) OF Notes, Fig. 2.5, p.17

38. Economic Production TheoryApplied to Law Enforcement CL Case of: Varying Proportions CL Production: CL = f( OF, L) Assumes System Resources are held fixed while offenses vary OFFENSES (load on the System) RESOURCES (labor) OF So much for Productivity, What does this imply about Police Effectiveness?

39. Determining Police Effectiveness CL A Notes Fig. 2.6, p.17 CL1 0 OF1 OF

40. Determining Police Effectiveness CL A CL1 Notes Fig. 2.6, p.17 How do we measure Police Effectiveness? a 0 OF1 OF As Slope of 0A = tan a = OF to A = CL1 0 to OF1 OF1

41. Determining Police Effectiveness CL A CL1 Notes Fig. 2.6, p.17 How do we measure Police Effectiveness? a 0 OF1 OF Does anyone recall what this is? As Slope of 0A = tan a = OF1 A = CL1 0 OF1 OF1

42. Determining Police Effectiveness CL A CL1 Notes Fig. 2.6, p.17 a 0 OF1 OF tan a = OF1 A = CL1 = CR1 The CLEARANCE RATIO 0 OF1 OF1

43. To plot the Clearance Ratio for various Offense Levels CL B CL2 A CL1 a 0 OF1 OF2 OF Notes Fig. 2.6, p.17

44. To plot the Clearance Ratio for various Offense Levels CL B CL2 A CL1 Notes Fig. 2.6, p.17 a 0 OF1 OF2 OF Plot points A and B in space showing the Clearance Ratio relative to Offense levels

45. Plotting points A and B in CR - OF space Note that CR1 = CL1> CR2 = CL2 OF1 OF2 and line AB is drawn holding L constant CR A CR1 B CR2 (CR,OF|L0) 0 OF1 OF2 OF What happens to Police Effectiveness with an increase in Police Resources?

46. The change in Police Effectiveness with an increase in Police Resources, holding Offense levels constant CR Higher Effectiveness, Effect of New level of Police Resources A CR1 (CR,OF|L1) B CR2 (CR,OF|L0) 0 OF1 OF2 OF We can show this in terms of alternative levels of Resources

47. Police Effectiveness in terms of alternative levels of Resources CR Curves illustrated assume Economic Efficiency, i.e., that Resources are being used efficiently. Offenses are being held constant 0 L Notes, Fig. 2.8, p18 What if they are not ?

48. What if Police are not efficient, but simply “satisficing”, i.e., just working sufficiently hard to maintain Clearance Ratios? CL We will not observe diminishing returns since the police are not working to their limit to begin with. B A OF

49. What if Police are not efficient, but simply “satisficing”, i.e., just working sufficiently hard to maintain Clearance Ratios? CL We will not observe diminishing returns since the police are not working to their limit to begin with. B A OF CR Performance standards appear to be maintained, since Clearance Ratios are maintained A B OF

50. What if Police are not efficient, but simply “satisficing”, i.e., just working sufficiently hard to maintain Clearance Ratios? CL We will not observe diminishing returns since the police are not working to their limit to begin with. B A OF What would this imply in Economic terms ? CR Performance standards appear to be maintained, since Clearance Ratios are maintained A B OF