Crime and Law Enforcement

1. Siena Seminar04/2005 Crime and Law Enforcement Nuno Garoupa Universidade Nova de Lisboa CEPR, London

2. OUTLINEOverview of the Economics of Law Enforcement • Introduction • Background: The Classical School; The NeoClassical School. • The Economics of Deterrence and Law Enforcement • Basic Economic Model. • Extensions of Basic Model. • Other Goals of Law Enforcement. • Empirical Work: The Controversies. • The General Structure of Law Enforcement • The Choice of Private vs. Public Enforcement of the Law. • Determinants of the Structure of Law Enforcement: Criminal, Tort, and Administrative. • Economic Aspects of Criminal Procedure.

3. INTRODUCTION

4. Background The Early Days • Cesare Beccaria (1738-1794) [Cesare Bonesana, Marchese di Beccaria] Of Crimes and Punishment, 1764 • Jeremy Bentham (1748-1832) Introduction to the Principles of Morals and Legislation, 1789

5. Beccaria • Fundamental Ideas • There should be as little law as possible • Criminal law should not simply uphold moral values for their own sake, but should furnish the requirements of society • Criminal offenses should be clearly defined • Punishment should be proportional to the harm done to society; it should not exceed that which was necessary to ensure that the criminal would not re-offend; • Punishment should deter in a general sense; • There must be certainty of punishment and it should be imposed promptly • Certain moderate punishment is easier to enforce and therefore is more effective than the mere possibility of a severe one; • Fines should dominate over imprisonment and death penalty (which he disliked); • Corporal punishment is the appropriate way to deal with violent offenders.

6. Impact of Beccaria’s work • Abolishment of death penalty in Tuscany and, for a while, in Austria. • Declaration of Rights of Man in France. • Revolutionary Code of 1791: the level of punishment was related to the precise nature of the offense to such an extent that the only function for the judge was the determination of guilt or innocence. • American Declaration of Independence.

7. Impact in America “We perceive... that the severity of our criminal law (that is, the old criminal law inherited from England) is an exotic plan, and not the native growth of Pennsylvania... as soon as the principles of Beccaria were disseminated, they found a soil that was prepared to received them.” William Bradford, 1793, US Attorney-General

8. Bentham • Fundamental Ideas • Criminal law should be subject to the principle of “the greatest happiness of the greatest number” (utilitarism); • Every human act should be first evaluated in terms of whether it will cause pleasure or pain; • To deter a crime, the amount of pain derived from the forbidden act should be greater than the amount of pleasure; • Harsh punishment should be constrained by the social contract, no-one could be taken to have agreed to the possibility of receiving excessively harsh punishment;

9. Impact of Bentham • Reports for a Criminal Code (1833-1848) in the UK; • Code Napoleon of 1810.

10. Neoclassical School • Rossi (1787-1848); Garraud (1849-1930); Joly (1839-1925). • Fundamental Ideas: • There are limitations to rational choice; • Punishment should fit the crime rather than the criminal; • People are free not to choose crime.

11. And Rational Choice Goes Away... • Positivism... The predestined model; [from 1880s to 1960s] • Labelling Theories ... The victimized model; [from the 1960s on to today]

12. ... And Rational Theory makes a comeback • The Modern Rational Theory • James Q. Wilson, Thinking About Crime (1975) • Clarke and Cornish, introduce limited rationality (1987) • Cohen and Felson, Routine Activities Theory (1979) • Hirschi, Social control theory (1969) • Gottfredson and Hirschi, General theory of crime (1990) • The Economic Theory • Becker (1968, JPE) • Stigler (1970, JPE) • Ehrlich (1973, AER) • Work by Polinsky and Shavell: OPTIMAL LAW ENFORCEMENT

13. ECONOMICS OF ENFORCEMENT

14. BASIC MODEL • Objective of law enforcement: DETERRENCE. • Why?: Externality (social harm or social damage). • How?: Internalize externality. • Market Approach to Law Enforcement: • Is there a market for offenses? • Is a sanction really a price? • Price approach (Becker, 1968 JPE) • Pigou taxation approach (Cooter, 1982 Columbia LR) • Policy instruments: • Sanction: Fine; • Resources devoted to punishment: Probability;

15. BASIC MODEL • Individuals compare: • Benefits • Illegal Gain • Other Gains (Psychological, Biological,…) • Costs • Expected Punishment • Social Costs: Stigma • Other Costs (Psychological) • Decision to offend is the rational outcome of comparing costs and benefits There will be crime if Benefits > Costs

16. NORMATIVE FRAMEWORK • What are the payoffs? • Criminal : Benefits of crime – Costs of crime • Victim: Harm from crime • Government: Benefits from punishment– Enforcement Costs

17. NORMATIVE FRAMEWORK • Utilitarian Social Welfare: Benefits of Crime [C] + Benefits from Punishment [G] – Costs of Crime [C]– Harm from Crime [V] – Enforcement Costs [G]

18. NORMATIVE FRAMEWORK • Should Illegal Gains be Considered? • Social Contract • Kaldor-Hicks Efficiency • Pareto Conflict Theorem (Kaplow and Shavell, 2000 JPE)

19. DETERRENCE WITH FINES • Compliance is achieved if Benefit from Crime = Cost of Crime • Benefit = Illegal Gain • Cost of Crime = Probability x Fine

20. DETERRENCE WITH FINES • Compliance is Efficient if... Illegal Gain < Harm • Compliance is NOT Efficient if... Illegal Gain > Harm • Therefore, we should have... Probability x Fine = Harm

21. THE MULTIPLIER PRINCIPLE Fine=Harm/Probability Harm = 100

22. LIMITATIONS OF MULTIPLIER PRINCIPLE • Resistance to Inflating Sanctions • Punishment should fit the crime • Difficulty in estimating accurately the probability of punishment • Individuals are not risk neutral • Does not say which policy is efficient

23. BECKER’S FUNDAMENTAL RESULT Fines are costless transfers Resources devoted to punishment are socially costly High Fine – Low Probability Fine= Entire Wealth Probability should go to Zero

24. BASIC PROPERTIES OF LAW ENFORCEMENT • Acts that have a benefit higher than the external cost they cause SHOULD NOT be deterred and SHOULD be punished. • Acts that have a benefit lower than the external cost they cause SHOULD be deterred.

25. BASIC PROPERTIES OF LAW ENFORCEMENT • Punishment should be based on harm to the victim and not on the gain to the criminal (Polinsky and Shavell, 1993 JLEO). • A sanction based on the gain to the criminal would deter by removing the illegal gain. However, if the gain is above the level of harm, the deterrence of these acts would be inefficient.

26. OPTIMAL LAW ENFORCEMENT • The Multiplier Principle is not Efficient because it does not care about enforcement costs. • Efficient probability and sanction should maximize social welfare • Fine equals entire wealth (Becker) • Probability “equals” Harm/Fine – Marginal Cost of Enforcement • Expected Fine is less than Harm • Some under-deterrence is efficient (Polinsky and Shavell) • Complete deterrence is not efficient (Polinsky and Shavell)

27. OPTIMAL LAW ENFORCEMENT • Efficient Deterrence is NOT… … Complete Deterrence. … achieved by the Multiplier Principle. • Efficient Deterrence is… … maximization of Social Welfare. … about criminals being able to compensate victims (potential).

28. DETERRENCE WITH NONMONETARY SANCTIONS • Nonmonetary sanctions are different because: • They are socially costly to impose (NOT costless) • They create disutility (NOT transfer)

29. DETERRENCE WITH NONMONETARY SANCTIONS • Optimal Nonmonetary Sanctions (Polinsky and Shavell, 1984 JPubE): • Should NOT be maximal… • Should be used infrequently… • Should be implemented once fines are exhausted… • Less wealthy people • Should only be applied for more harmful acts…

30. DETERRENCE WITH NONMONETARY SANCTIONS • Why NOT? • Wealth is private information: imprisonment as a device for information revelation (Levitt, 1996 IRLE) • Disutility of imprisonment (Polinsky and Shavell, 1998 JLS) • Risk neutrality with respect to fines • Risk-aversion with respect to imprisonment • Corruption or other means of punishment avoidance (Garoupa and Klerman, 2004 IRLE)

31. LAW ENFORCEMENT LITERATURE

32. Marginal Deterrence Multiple Offenses Attempts Repeat Offenders Deterrence with a Reduction in Enforcement Costs Plea-Bargaining Self-Reporting Corruption Avoidance activities including defense expenditure Legal Aid Corporate & Business Crime Principal Agent Theory Should the Management or the Shareholders be Punished? Deterrence vs. “Cover Up” Victims Precaution Should we have comparative negligence rules in criminal law? Compensation Hate Crimes Enforcement Errors Deterrence Miscarriage of justice Systematic or Random? Incentives for Enforcement Agents Monitoring versus Investigation What do Prosecutors maximize? What do Judges maximize? LAW ENFORCEMENT LITERATURE(since 1979)

33. MARGINAL DETERRENCE • If sanctions are maximal for all acts, the marginal expected cost for a second crime is zero... It will not be deterred! • Suppose there are two possible criminal acts: • Objective 1: Deter act A and act B. • Objective 2: If act A has been committed, deter act B. • Objective 3: If act B has been committed, deter act A.

34. MARGINAL DETERRENCE • If we apply maximal fines objectives 2 and 3 cannot be achieved!! • Therefore, in order to satisfy objective 2 and 3, we need nonmaximal fines. • Objective 1 is deterrence in the general sense whereas objectives 2 and 3 are marginal deterrence.

35. MARGINAL DETERRENCE • Implications (Stigler and others): • ... More harmful acts have higher fines, but less harmful act should have lower fines... • ... The fine for act A should increase with the level of harm generated by act A and decrease with the level of harm generated by act B... • ... There is a tension between marginal deterrence objectives and general deterrence objectives...

36. OTHER GOALS OF ENFORCEMENT • Incapacitation • Rehabilitation • Retribution • Preference Shaping • Stigma • Social Norms

37. OTHER GOALS OF ENFORCEMENT • Incapacitation • Benefit of incapacitation is the harm s/he would commit otherwise; • Imprisonment is more effective than fines; • However, in some particular contexts, other sanctions can be equally effective… • … losing driver license, suspending professional rights,… • Probability of detection and punishment is irrelevant.

38. OTHER GOALS OF ENFORCEMENT • Incapacitation • Deterrence is about dissuading an individual from committing a criminal act; • Incapacitation is about preventing an individual from engaging in a criminal act and remove parties from positions in which they could cause harm; • What an individual knows is irrelevant for incapacitation.

39. OTHER GOALS OF ENFORCEMENT • Incapacitation • The marginal benefit from incapacitation should equal the marginal cost; • Only those people who are highly prone to harm society should be incapacitated. • Empirical question: can we distinguish incapacitation from deterrence? • See Kessler and Levitt on using sentencing enhancements to distinguish INC and DET.

40. OTHER GOALS OF ENFORCEMENT • Rehabilitation • Marginal benefit from changing criminogenic preferences should equal the marginal cost of rehabilitation programs. • Empirical literature is not exciting about rehabilitation… • Retribution • Sanctions will be higher than otherwise…

41. OTHER GOALS OF ENFORCEMENT • Preference Shaping • Stigma • Deterrence. (Rasmusen, 1996 JLE) • Intertemporal inconsistency: entry vs. exit barriers. (Funk, EER 2005) • Social Norms • Norms management • Relationship between extralegal and legal norms • Criminal law as a signal • Criminal sanctions as part of optimal morality rules • Expressive Law and Economics • Criminal Law as a focal point

42. EMPIRICAL ANALYSIS

43. EMPIRICAL ANALYSIS • The decline of crime in the 1990s in the US • The magnitude • The broad range • The universality • The persistent, continuous nature of the crime decline • Unexpected drop • The controversies • Death penalty • Guns • Legal abortion • Effects of sentencing guidelines on crime rates • Affirmative action on policing • Racial bias on arrests • Low female criminality • Effects of juvenile sentencing rules on juvenile delinquency

44. (Levitt, 2004)

45. (Levitt, 2004)

46. (Levitt, 2004)

47. CAPITAL PUNISHMENT • DEBATE • Ehrlich (1973, 1975): seven murders per execution. • A number of critics demonstrated the sensitivity of Ehrlich’s findings to minor changes in specification. • Similar debate in Britain (Wolpin, Pyle, Cameroon). • Leamer and McManus in the late 1980s argue that the evidence of deterrence is essentially a product of the researcher’s prior beliefs. • Ehrlich and Liu (1999): focus on 1940 and 1950, there is a deterrent effect. • A series of more recent studies that incorporate data from the 1990s find yet again a deterrent effect. But others do not. Measurement problems and econometric specification are at the heart of the debate. • Levitt (2004): believes if there is any effect, it is small.

48. CAPITAL PUNISHMENT • Levitt’s argument against a substancial deterrent effect of capital punishment: • Rarity of executions and long delays in doing so...the probability is still below 1 in 200 (2% annual execution rate for those on death row, just twice the death rate from accidents and violence among all American men). • Even if Ehrlich’s optimistic empirical estimate would only eliminate 364 homicides per year, less than 1/20 of the observed decline. • Notice: the question of deterrence is effectiveness and not efficiency of dealth penalty.

49. CONCEALED WEAPONS LAWS • Concealed Weapons (Shall Issue) Laws • Argument: in face-to-face contact and for particular crimes, armed victims raise cost faced by a potential offender. • Under Shall Issue Laws: • A law that allows a citizen to carry a concealed handgun if h/she can demonstrate a need to a governmental official is a discretionary or “may issue” law; • A “shall issue” law is designated to eliminate discretion on the part of officials because permits have to be issued unless specific and easily verifiable factors say otherwise. • Permit cannot be issued for: • Individuals below 18 or 21; • Those who have a criminal record or a history of mental illness.

50. CONCEALED WEAPONS LAWS • DEBATE over the enactment of Shall Issue Laws with respect to Gun Concealed on Crime Rates • Lott and Mustard (1996, JLS) , Lott (1997, JLS; 2000) NEGATIVE • Black and Naggin (1998, JLS), Duggan (2001, JLS), Ayres and Donohue (2001, ALER; 2003, Stanford LR)  NO, SOME POSITIVE