Phillips/Econ
Winter 20111
Social Welfare: The Impact of Crime On Society-1
Perhaps the greatest contribution of economics to programmatic
evaluation and public policy is the determination of value. A contrary view was
expressed by the Irish poet Oscar Wilde who said that "economists know the
price of everything and the value of nothing". With regard to value, the English
economist Alfred Marshall pointed out that there are two blades to the scissors:
supply and demand. Supply represents the cost of provision or production,
reflecting scarcity. Demand reflects want. We all need air and water to live, yet
air is plentiful and free. None of us need diamonds, although many want them,
and they are expensive because they are also scarce and costly to provide.
Valuation is intrinsic to individuals who are able to order or rank
alternatives. One of the objectives of today's lecture is to use value as an insight
into the motivation for different types of offenses such as taking, black market,
and violent crimes. Greed or self-interest motivates the first two while malice
motivates the last. Ironically, all of market economics is founded on selfinterested economic man(see Hirshleifer). The great paradox is that a base
motive, greed, channeled through voluntary exchange, as facilitated by the social
institution of markets, promotes social welfare. The key to market economics is
voluntary exchange. The essence of taking crimes is involuntary exchange.
Hence the usual market economics will only take us so far. With crime, no
offenses are priced and our challenge is to find the values. We are saved from
Oscar Wilde.
Involuntary exchange involves a redistribution of income. It appears to be
a zero-sum game with the thief gaining what the victim loses. The social
desirability of income distribution can be controversial, a value judgment, with
some critics of our capitalistic society arguing for a Robin Hood policy of taking
from the rich and giving to the poor. However, taking crimes involve more than
income redistribution. They lead to conflict (Hirshleifer). The actual, or even
potential, actions of the thief cause defensive reactions by the victim. Private
defense uses resources. The threat of victimization and conflict leads to a "deadweight" loss of income used for protection, leaving society poorer. If we could
reduce crime to a low level we could save those resources that we are forced to
Phillips/Econ
Winter 20111
Social Welfare: The Impact of Crime On Society-2
spend on defense. Thus crimes of involuntary exchange are unambiguously
against the social interest. This is the second major point of this lecture.
Values are not only individual but also collective. The social undesirability
of involuntary exchange is embodied in the social welfare function, i.e. public
preferences, as codified in the criminal law.
Most taking crimes are impersonal with the victim unknown to the
perpetrator. Nonetheless, getting ripped off engenders a desire for revenge by
the victim as well as feelings of fear due to the unforeseen or apparently random
nature of the event. In contrast, with crimes of violence the offender is usually
known to the victim. The offender has malevolent preferences (Hirshleifer),
although this may be a case of split or multiple personalities (Hirshleifer), with
malevolence dominating greed, or even feelings of benevolence or affection in
the case of friends and family, for the moment.
Black market crimes involve the voluntary exchange of goods and
services. So why are they crimes? The participants willingly enter into the
bargain. Although they may bear personal side-effects and costs, these are
perceived to be outweighed by the benefits. Society may violate the principle of
consumer sovereignty, and intervene to save people from themselves. Witness
the controversy and court cases about "offensive" rap lyrics. Whether it is
prohibition or gambling, prostitution or drugs, policy varies from era to era,
society to society, state to state, and county to county. This type of offense is
one of the most controversial and changeable areas of criminal justice. It may
make criminal justice policy look arbitrary. However, crimes against property and
people do not have this characteristic. This is the third major point of this lecture.
Another basis for social intervention with market outcomes is the
presence of externalities, or damages to bystanders. The health worker who
witnesses the birth of babies addicted to crack probably will support The War on
Drugs. There are various social remedies to externalities: taxes, regulatory
controls, and property rights. Are they preferable to the criminal code for these
controversial "black market" behaviors? We will return to this question in the
lecture before the midterm.
Phillips/Econ
Winter 20111
Social Welfare: The Impact of Crime On Society-3
Figure 1 illustrates a taking crime, for example theft. A total income of
$12,000 is split evenly between the victim and the thief before the crime. The
theft redistributes $2000 to the thief, a loss of one third of the victim’s income.
The thief is assumed to be motivated by greed, i.e. wants more income, but is
indifferent to the plight of the victim. This is indicated by the horizontal isopreference lines. Some would argue that this is all there is to analyzing property
crimes.
($4000, $8000) Theft: Income Redistribution
Thief's
Income
$12,000
High
Thief's Greedy Preferences
Moderate
($6000, $6000) Income Distribution
Low
$12,000
Victim's Income
Figure 1: Theft Viewed As Income Redistribution
But there is more to crimes against property, than simply income
redistribution, although that is part of the story. The victim resents being ripped
off, and may fear being ripped off again. Others may think that they will be next.
A natural reaction is to protect what is yours and harden the target. Whether this
is as simple as buying a better lock or as complex as moving to a gated
community, defense costs money, i.e. uses up resources for defense that would
be free to satisfy other needs if there was not the fear of being victimized by
criminals. This “dead-weight” loss of defense is illustrated in Figure 2.
Phillips/Econ
Winter 20111
Social Welfare: The Impact of Crime On Society-4
($4000, $8000) Theft: Income Redistribution
Thief's
Income
$12,000
High
Thief's Greedy Preferences
Moderate
($6000, $6000) Income Distribution
Low
$1000 Cost of Defense, Dead-W eight Loss
$12,000
Victim's Income
Figure 2: Theft, Private Defense & Dead-Weight Loss
_______________________________________________________________
Assault, vandalism, terrorism, and other crimes of violence and crimes
against society are motivated by antagonistic feelings. The perpetrator is no
longer indifferent to the plight of the victim but is willing to sacrifice some or all of
their own welfare to diminish the welfare of the victim. This is illustrated by the
dark, curved indifference curves of the anti-personal or anti-social criminal in
Figure 3.
Phillips/Econ
Winter 20111
Social Welfare: The Impact of Crime On Society-5
Violent Offender's Malevolent Preferences
Violent
Offender's
Income
(Welfare)
High
Moderate
Income Distribution
Victim's Income (Welfare)
Figure 3: The Violent Offender's Malevolent Preferences
Phillips/Econ
Winter 20111
Social Welfare: The Impact of Crime On Society-6
THE DEFINITION OF CRIME and the Role of MOTIVATION
I. SELF-INTEREST (GREED)
A. TAKING
a. street crimes (crimes against property)
1. grand theft*
2. auto theft*
3. burglary*
4. robbery* (against persons)
b. white collar crimes
1. embezzlement
2. tax evasion
3. check fraud/false name
4. passing worthless checks
B. EXCHANGE
a. black market crimes (victimless crimes)
1. gambling
2. prostitution
3. selling heroin
C. SELF-INTEREST
a. status offenses
1. runaway
2. truancy
3. beyond control of parents
II. SADISM (PLEASURE FROM THE SUFFERING OF OTHERS)
A. HATE (FOCUSED ON AN INDIVIDUAL)
a. street crimes (crimes against persons)
1. homicide*
2. aggravated assault*
3. rape*
B. RAGE (AGAINST SOCIETY)
a. crimes against public order
1. vandalism
2. arson
3. poisoning
4. terrorism
Phillips/Econ
Winter 20111
Social Welfare: The Impact of Crime On Society-7
SERIOUSNESS SURVEY
RATE THE SERIOUSNESS OF EACH OF THE FOLLOWING
BEHAVIORS ON A SCALE FROM ZERO (LEAST SERIOUS) TO
TEN (MOST SERIOUS):
1. HOMICIDE
___
2. MASS POISONING ( e.g. TYLENOL)
___
3. FORCIBLE RAPE
___
4. ARSON: SET FIRE TO A GARAGE
___
5. SELLING HEROIN
___
6. AUTO THEFT
___
7. EMBEZZLEMENT OF $1,000
___
8. PROSTITUTE IN A HOUSE OF PROSTITUTION ___
9. POSSESSION OF MARIJUANA
___
10. SNIFFING GLUE
___