Economics of Crime

1. Economics of Crime Econ 3670 Applications of Choice Theory Roberto Martinez-Espiñeira

2. 1 A Criminal World – the US Picture

3. 2 A Criminal World – Murderous Places

4. But note that these are figures for selected cities. If we looked at the highest rates in cities as such, USA, South African and Russian would still up there… but South America would bring in many candidates (Colombia, Brazil, Mexico, etc.) Also see here update of murder rates at the country level https://en.wikipedia.org/wiki/List_of_countries_by_intentional_homicide_rate

5. 3 A Criminal World – US’s Top Ten for Murder

6. 4 A Criminal World – Banged Up

7. But some good news… • https://www.ted.com/talks/steven_pinker_on_the_myth_of_violence?language=en

8. 5 Criminal Economists – the Classical Approach Vs Modern Day Approach • Economists’ interest in crime is longstanding (e.g. Beccaria, Bentham, Paley and Smith, the latter believing that, “the establishment of commerce and manufactures….is the best police for preventing crimes”) • Modern day approach to economics of crime owes origins to Gary Becker’s (1968) seminal contribution the Journal of Political Economy

9. 6 Criminal Economists – The Modern Day Approach • Economists in recent years focus on: • Rationalizing and modeling criminal participation rates • Identifying and measuring social costs of crime • Exploring appropriate and optimal choice of punishment • Assessing effectiveness of different law enforcement agencies • Evaluating feasibility of alternative crime reduction strategies

10. 7 Rationalizing and Modeling Criminal Activity • Becker’s approach assumes that potential criminals respond rationally and consistently to incentives • An individual will commit a crime if the benefits (expected utility) exceed benefits from legitimate activity • Becker claims that potential criminals will be deterred by: • (i) increases in probability of being caught and punished • (ii) increases in amount of punishment if caught • Both (i) and (ii) reduce expected utility

11. 8 Capital Punishment • Ehrlich’s work in the 1970s on the deterrent effect of capital punishment is probably the most well-known and most controversial in the literature • In 1975 he examined US murder and execution figures for the 1933 to 1969 period, together with measures of social factors such as unemployment and per capita income

12. 9 Capital Punishment • Ehrlich’s model revealed a negative relationship between the murder rate and the execution rate • In fact, Ehrlich suggested a “tradeoff between executions and murders’, and estimated that over the period studied, “an additional execution per year…may have resulted, on 7 or 8 fewer murders” • His findings generated a storm of controversy concerning both his data and econometric method

13. 10 Capital Punishment • However, Rubin (1978) surveyed the literature and explained that for research concluding that there was no deterrent effect: • “…many of these studies were anecdotal in nature…But this kind of evidence cannot prove anything. We need some sort of statistical study to determine the true relationship. Many of the earlier sociological studies were statistical, but the statistics were not very sophisticated…The kind of study done by Ehrlich…is able to compensate for most differences that are thought to be significant. The results of Ehrlich’s studies are very strong in indicating a deterrent effect of capital punishment”

14. 11 Capital Punishment • Economists kept exploring the issues with increasingly sophisticated statistical techniques • The general result is additional empirical support for most of Ehrlich’s findings

15. 12 Capital Punishment • Levitt (2004) suggests caution in the interpretation of these kinds of figures: • The death penalty is used only sparingly and the necessary legal process is often prolonged • Therefore, the rational criminal is unlikely to be deterred by the threat of execution • Even if we accept these estimates, “the observed increase in the death penalty from 14 executions in 1991 to 66 in 2001 would eliminate between 300 and 400 homicides, for a reduction of 1.5 percent in the homicide rate, or less than one-twenty-fifth of the observed decline in the homicide rate over this time period”

16. 13 Capital Punishment • Ehrlich and others found significant support for the deterrence hypothesis, but it does not follow that these economists advocate capital punishment or severe criminal penalties • The deterrence hypothesis is a positive implication of economic theory that empirical tests have generally supported • Whether capital punishment is desirable or not is a normative issue and the suggestion that it deters is not the same as suggesting it should be used • Ehrlich himself has argued that the best way to reduce crime, including murder, is through the creation of economic opportunities

17. 15 The Ugly Face of Crime • “I am too ugly to get a job!” • A Miami man’s statement in 2003 as to why he committed robberies

18. 17 The Ugly Face of Crime • A large literature exists on the differences in economic outcomes by individual characteristics (race, gender, ethnicity, stature, and beauty) • Hamermesh and Biddle (1994), Harper (2000) and Hamermesh et al. (2002) demonstrate that physically attractive workers earn sizeable premiums for their looks • Literature on sorting: movement of individuals across different industries and sectors based upon relative returns to some particular characteristic that they possess

19. 18 The Ugly Face of Crime • In case of attractiveness: Biddle and Hamermesh (1998) show that the premium to attractiveness exists within narrowly-defined occupations, and beauty induces individuals to sort themselves into occupations where attractiveness is rewarded. • Biddle, J. & Hamermesh, D. (1998), 'Beauty, Productivity, and Discrimination: Lawyers' Looks and Lucre', Journal of Labor Economics 16(1), 172-201. • Perisco et al. (2004) show that taller workers receive a wage premium • Persico, N.; Postlewaite, A. & Silverman, D. (2004), 'The effect of adolescent experience on labor market outcomes: The case of height', Journal of Political Economy 112(5), 1019--1053.

20. 18 The Ugly Face of Crime • Kuhn and Weinberger (2005) find that leadership skills in high school affects wages • Kuhn, P. & Weinberger, C. (2005), 'Leadership Skills and Wages', Journal of Labor Economics 23(3), 395-436. • These papers are important because they underline the significance of non-cognitive factors in pay determination

21. 19 The Ugly Face of Crime • If beauty commands a positive earnings premium in the legal labor market, all else being equal, sorting of less attractive people into the illegal sector may be expected

22. 20 The Ugly Face of Crime • UCD’s Naci Mocan (left) has been working on a paper with Erdel Tekin from Georgia State University entitled, “Ugly Criminals”

23. 21 The Ugly Face of Crime Primary goals of paper: • (i) to investigate the extent of sorting between the labor market and the criminal sector based on physical attractiveness • (ii) to investigate if pre-labor market beauty has an independent effect on current criminal activity • Also: • (iii) to investigate if beauty has an impact on wages and measures of human capital development • (iv) to investigate if attractive individuals are treated more favorably by the criminal justice system

24. 22 The Ugly Face of Crime • Analytical Framework • Individuals engage in crime based on a comparison of the expected utility from criminal activity to the utility derived from legal work • Expected utility in the criminal sector is: E[U(W)]= (1-p(B))U(Wcr)+p(B)U(Wa) • Engage in crime if (1-p(B))U(Wcr)-p(B)U(Wa) > U(Wl) • where Wl stands for earnings in the legal sector

25. 23 The Ugly Face of Crime • Wl = γB+βX, • If γ>0 beauty has a wage premium,  attractive individuals are more likely to sort themselves into the labor market and unattractive ones are more likely to sort themselves into the criminal market • However, beauty can also increase criminal opportunities if good looks help build trust => dWcr/dB>0 (financial fraud) • Good looks may also reduce the probability of apprehension and conviction => dp(B)/dB<0 (e.g. Efran 1974) • Then, the net impact of beauty on crime would be ambiguous

26. 24 The Ugly Face of Crime • Empirical crime supply function: CRi = f (Xi, A, Wl, Ki) or CRi = g (Xi, A, Bi, Ki) X: Personal characteristics B: indicator of beauty A: deterrence K: family and contextual variables

27. 25 The Ugly Face of Crime • Is there a second mechanism? • Attractive students receive more attention from teachers. Attractiveness influences perceptions about intelligence. Attractive students are liked better by peers, even by parents. • Student names that signal lower socio-economic status generate lower teacher • Perhaps preferential treatment of better-looking kids by teachers generates confidence and social skills in these kids which lead to better communication skills CRi = h (Xi, A, Bi, Bihs, Ki)

28. 26The Ugly Face of Crime Data for study • Data come from the National Longitudinal Survey of Adolescent Health (Add Health). It is a large and nationally representative survey of 20,745 adolescents who were in grades 7 to 12 in 1994, with rich data on outcomes • Largest and most comprehensive survey of adolescents ever undertaken. These teens were followed up in 1995 and again in 2001-2002 when they were 18 to 28 years old. Sample size in Wave III is 15,197

29. 27 The Ugly Face of Crime • The respondents were asked whether they had committed any of the following acts in the 12 months prior to the interview date: robbery, burglary, assault, selling drugs, damaging property, and theft • At the end of each interview, the interviewer filled out a short survey, where, among other things, she/he rated the respondent’s physical attractiveness. • Question: “How physically attractive is the respondent?” Possible answers: 1. very unattractive, 2. unattractive, 3. about average, 4. attractive, 5. very attractive

30. 29 The Ugly Face of Crime Controls: • Personal characteristics: Age, race, ethnicity, non-wage income, health, whether U.S. born, religious affiliation, birth weight • Socio-economic background characteristics: Mother’s education, parents’ welfare receipt, family income presence of a biological father, absent father, step father, age of mother at birth, whether father ever jailed • Also, interviewer fixed effects

31. 31 The Ugly Face of Crime Questions: Are ugly people being penalized just because they are ugly? or Does ugliness jeopardize human capital accumulation as well? (through unfavorable treatment by teachers, peers, etc.)

32. 32 The Ugly Face of Crime • Evidence suggests that attractive individuals sort themselves into the legal labor market, while unattractive individuals sort themselves into the criminal market • Results are more pronounced for females than for males • Beauty is associated with a wage premium, while unattractiveness is associated with a wage penalty

33. 33 The Ugly Face of Crime • For females, holding constant current beauty, high school beauty (pre-labor market beauty) has a separate impact on crime, and high school beauty is correlated with variables that gauge various aspects of high school experience, such as GPA, suspension from school, and problems with teachers. Thus, high school beauty seems to acts as a proxy for the extent and quality of human capital formation in high school

34. 34 The Ugly Face of Crime • Taken together, these results suggest two handicaps faced by unattractive individuals: • (i) a labor market penalty provides a direct incentive for unattractive individuals toward criminal activity. • (ii) Second, the level of beauty in high school has an effect on criminal propensity 7-8 years later, which seems to be due to the impact of beauty in high school on human capital formation, although this second avenue seems to be effective for females only