1 / 32

The Economics of Law Enforcement

ESNIE 2004. The Economics of Law Enforcement. Nuno Garoupa Universidade Nova de Lisboa CEPR, London. OVERVIEW OF LECTURE. Introduction Public Nature of Law Enforcement Basic Theory Recent Developments Other Goals of Law Enforcement General Structure of Law Enforcement

preston-lindsey
Download Presentation

The Economics of Law Enforcement

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. ESNIE 2004 The Economics of Law Enforcement Nuno Garoupa Universidade Nova de Lisboa CEPR, London

  2. OVERVIEW OF LECTURE • Introduction • Public Nature of Law Enforcement • Basic Theory • Recent Developments • Other Goals of Law Enforcement • General Structure of Law Enforcement • Private vs. Public • Criminal vs. Tort • Joint Methods of Legal Intervention • Special Case of Corporations • Comparative Aspects of Law Enforcement • Administration of Law Enforcement • Institutional Analysis • Concluding Remarks

  3. INTRODUCTION Economics of Law Enforcement • Economics • Individual Behavior: Microeconomics • Normative Approach: Welfare Economics • Law • Role and Goals of Law • Content of Law • Structure of Law: Private vs. Public • Enforcement • Certainty vs. Severity • Institutional Arrangements

  4. INTRODUCTION Literature • Foundations: The Classical Theory • Hobbes (1588-1869), Rosseau (1712-1778), Locke (1632-1704): social contract; inalienable rights • Cesare Beccaria (1738-1794) • Jeremy Bentham (1748-1832) • 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) • The Economic Theory • Becker (1968, JPE) • Work by Polinsky and Shavell

  5. Introduction

  6. 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

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

  8. THE MULTIPLIER PRINCIPLE Sanction=Harm/Probability

  9. 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

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

  11. BASIC PROPERTIES OF LAW ENFORCEMENT • Punishment should be based on harm to the victim and not on the gain to the criminal: • Removal of illegal gains. • 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.

  12. OPTIMAL LAW ENFORCEMENT • Choose probability and sanction to maximize social welfare -> Public Law Enforcement. • Social welfare: Utilitarian Approach Criminals: Illegal Gains – Expected Punishment Victims: - Social Harm Government/Taxpayers: Expected Punishment – Enforcement Costs Total: IG – H – Enforcement Costs • 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 (PS)

  13. QUICK OVERVIEW OF RISK AVERSION • Risk averse individuals are not indifferent between any probability and fine equal to social harm; • Risk premium is strictly increasing in the fine, but not in the probability; • Efficient fine is usually less than the entire wealth: disutility of risk premium is a social cost!

  14. DETERRENCE WITH NONMONETARY SANCTIONS • Nonmonetary sanctions are different because: • They are socially costly to impose (NOT costless) • They create disutility (NOT transfer) • Social welfare: Criminals: Illegal Gains – Expected Punishment Victims: - Social Harm Government/Taxpayers: – Enforcement Costs Total: IG – EP - H – Enforcement Costs

  15. DETERRENCE WITH NONMONETARY SANCTIONS • Optimal Nonmonetary sanctions (PS): • 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… • Why not? • Wealth is private information: imprisonment as a device for information revelation (Levitt) • Disutility of imprisonment (PS) • Corruption or other means of punishment avoidance (Garoupa and Klerman) • [Death Penalty: Efficiency vs. Efficacy]

  16. THE ECONOMIC THEORY OF DETERRENCE Building on the Maximal Fine Result and Implications for Public Policy: • Marginal Deterrence (Stigler) • Attempts • Repeated Offenses • Different Levels of Wealth (PS) • Different Levels of Probability for same Resources (Bebchuk and Kaplow) • Monitoring vs. Investigation (PS) • Asymmetric Information (Bebchuk and Kaplow) • Incentives to Acquire Information (Kaplow) • Dissemination of Information by Government (Garoupa) • Self-Reporting (Kaplow and Shavell) and Plea-Bargaining • Criminal Avoidance Activities (Malik, Gravelle and Garoupa) • Errors (Png) • Corruption (Becker and Stigler, Bowles and Garoupa, PS) • Organize Crime (Garoupa) and Other Contexts with Extralegal Sanctions (Cooter and Porat) • Private Precaution by Victims: Moral Hazard (Hylton, Ben-Shahar and Harel) • Judicial behavior, prosecution and juries

  17. THE ECONOMIC EVIDENCE OF DETERRENCE • Criminology says no… • Economics says yes… but… • Probability is more effective than severity of punishment; • Debate over death penalty… • Criminal justice is extremely costly… • Difficulty in separating deterrence and incapacitation…

  18. RECENT DEVELOPMENTS • Behavioral Law and Economics • Criminals are bounded rational • Policy implications are still weak… • Law Enforcement is explained by Rent-Seeking (Garoupa and Klerman) • Enforcement generates rents (GK), • Enforcement rules protect certain groups (Hylton and Khanna) • Role of Enforcers • Incentives (Becker and Stigler, GK) • Law is Incomplete (Pistor and Xu) • Content and Evolution of the Law: • Conflict, Radical and Marxist Criminology • Rent-Seeking • Hate Crimes (Posner vs. Dharmapala and Garoupa) • Domestic Violence • Adultery (Rasmusen) • Organized and Corporate Crime

  19. OTHER GOALS OF ENFORCEMENT • Incapacitation • Benefit of incapacitation is the harm s/he would commit otherwise; • Imprisonment is more effective than fines; • Probability of detection and punishment is irrelevant. • Rehabilitation • Retribution • Preference Shaping • Stigma

  20. THE GENERAL STRUCTURE OF LAW ENFORCEMENT Private versus Public Enforcement of the Law • Theory • Private is more Efficient (Friedman) • Public is more Efficient (Landes and Posner) • What is Private and what is Public here? • Experiences: • Roman Law • Iceland • UK • Continental Europe

  21. CRIMINAL VS. TORT • Economic Explanations for Crime or Tort: • Harm caused by crimes is different from that of torts because… • … victimless crimes; • … too many victims (collective action problem); • … victims do not care about deterrence but compensation; • … other external aspects of enforcement (shaping preferences); • Political economy or rent-seeking theories: • Groups shift the cost of deterring and punishing a certain act from private (tort) to public (crime). • Criminals should be stigmatized, but not tortfeasors. • Criminals are uninsured, thus public intervention to guarantee compensation. • Economic Explanations for Crime, Tort and Regulatory Violation: • Regulatory Enforcement is cheaper but less effective; • Forces production of information by victims and enforcers; • Generates “competitive enforcement” • Duplication of Costs • Deters Corruption • Avoids Error

  22. GENERAL STRUCTURE OF LAW ENFORCEMENT (from Shavell, 2003)

  23. DETERMINANTS OF STRUCTURE OF THE LAW (from Shavell, 2003) • Determinants of Optimal Stage of Intervention • Magnitude of Possible Sanctions for Deterrence • Prevention • Information about Acts: • When • Who … State… Parties • Enforcement Costs • Determinants of Optimal Form of Sanctions • Level of Wealth • Illegal Gain • Harm • Resources Devoted to Detection and Punishment • Enforcement Costs • Distribution of Costs • Determinants of Public vs. Private Enforcement • Information is primarily private • Reporting • Compensation, Retribution • Effort must be Expended to Identify Injurers • Information systems may constitute natural monopolies

  24. Firms and Contracts as Nexus of Contracts: “Cooperative Crime” Allocation of Liability b/w Employee and Employer: Irrelevant [Coase Theorem] Relevant due to Transaction Costs [Agency Costs] Corporate Liability: Civil vs. Criminal Social harm of Corporate Crime Political Economy of Business Crime THE CASE OF CORPORATIONS

  25. COMPARATIVE LAW ENFORCEMENT

  26. COMPARATIVE LAW ENFORCEMENT

  27. COMPARATIVE LAW ENFORCEMENT

  28. COMPARATIVE LAW ENFORCEMENT

  29. COMPARATIVE LAW ENFORCEMENT

  30. COMPARATIVE LAW ENFORCEMENT

  31. COMPARATIVE LAW ENFORCEMENT

  32. FINAL REMARKS NEW RESEARCH + MORE RESEARCH • Theory • Criminal Behavior  Psychology, Criminology, Sociology • Shaping of Criminal Preferences • Open the Black Box • Criminal Justice System • Judges and Law Enforcement • Enforcers and Law Enforcement • Victims and Law Enforcement • Political Economy of Crime and Public Choice of Law • Empirical Work • Institutional Analysis and Comparative Law and Economics • Far behind other Social Sciences

More Related