ECONOMICS OF THE
METROPOLITAN AREA
212G, SPRING 2013
Professor: Keren Mertens Horn
Office: Wheatley 5-78B
Office Hours: TR 2:30-4:00 pm
E-mail: Keren.horn@umb.edu
INTRODUCTION TO CRIME
 Economic approach: Criminals respond to incentives
 Crime reduced by traditional crime -fighting resources (police,
prisons)
 Crime reduced by increasing returns to lawful activities
(schools)
 Crime reduction strategies have costs, so as economists we
must weigh the benefits of reducing crimes to the associated
cost
 The socially optimal level of crime is positive!
© 2012 The McGraw-Hill Companies. All Rights Reserved
13-22
CRIME STATISTICS: AMOUNT OF CRIME
© 2012 The McGraw-Hill Companies. All Rights Reserved
13-33
CRIME STATISTICS: WHO ARE THE
VICTIMS
© 2012 The McGraw-Hill Companies. All Rights Reserved
13-44
CRIME STATISTICS: WHO ARE THE
VICTIMS
 Fact #1 – Victimization rates for violent crime decrease as
income increases
 Fact #2 – Victimization rates lowest in rural areas and highest
in central cities. Suburbs fall between these two extremes.
 Fact #3 – For violent crime, victimization rate is 29.1 for
blacks and 21.5 for whites. Blacks are also more frequently
the victims of property crime.
© 2012 The McGraw-Hill Companies. All Rights Reserved
5
CRIME STATISTICS: COSTS OF CRIME
 What factors would we include when trying to estimate the
costs of crime?
 Costs to victims (lost property, medical expenses, and value of lives
cut short)
 Costs of criminal justice system (police, courts, correction facilities)
 Private prevention methods (alarm systems, hired guards, Lo -Jack)
 Opportunity costs of people in prison (some people who are currently
in prison would be productive members of society and we are
preventing those beneficial transactions)
 Total costs estimated at $250 billion per year
© 2012 The McGraw-Hill Companies. All Rights Reserved
13-66
THE RATIONAL CRIMINAL
 Economics of double parking
 Consider opportunity to buy a concert ticket (that you value at $44)
vs. potential cost of parking ticket (50-50 chance of paying $36)
 Who will take the risk?
 People generally risk averse: Need more than +$44 to offset
risk of -$36
 People differ in aversion to anti -social actions--anguish cost
© 2012 The McGraw-Hill Companies. All Rights Reserved
13-77
EQUILIBRIUM QUANTIT Y OF CRIME
 What are the marginal costs? (this represents the supply curve)
 Probability of being caught and imprisonment
 Length of prison term
 Opportunity cost of time spent in prison
 Anguish cost of crime
 As the value of the loot goes up this creates incentives for people
with higher marginal costs of crime to enter the crime market (upward
sloping)
 What are the marginal benefits?
 The loot taken
 At the top of the marginal-benefit curve are the easiest targets that
are most lucrative, as we move along the curve, criminals turn to less
and less lucrative targets.
© 2012 The McGraw-Hill Companies. All Rights Reserved
8
EQUILIBRIUM QUANTIT Y OF CRIME
© 2012 The McGraw-Hill Companies. All Rights Reserved
13-99
APPLICATION OF MARKET FOR CRIME
 This economic framework can help us analyze what the
appropriate responses are to decreasing the amount of crime.
 How does increasing the certainty of punishment affect the amount
of crimes committed?
 What about increasing the severity of punishment?
 Could employment programs or additional educational opportunities
decrease crime?
© 2012 The McGraw-Hill Companies. All Rights Reserved
10
INCREASING THE CERTAINT Y OF
PUNISHMENT?
© 2012 The McGraw-Hill Companies. All Rights Reserved
13-11
11
INCREASING THE CERTAINT Y OF
PUNISHMENT?
© 2012 The McGraw-Hill Companies. All Rights Reserved
13-12
12
EMPIRICAL EVIDENCE:
CRIME SUPPLY ELASTICITIES
 Elasticity of supply of crime: %∆Crime/%∆MC
 Elasticity of supply w.r.t. Probability of prison = -0.30
 10% increase in the probability of prison decreases crime by 3%
 Elasticity of supply w.r.t. Arrest ratio = -0.30
 10% increase in the probability of arrest decreases crime by 3%
 Elasticity of supply w.r.t . Number of police = -0.40 to -0.50
 10% increase in the police force decreases crime by 4% - 5%
© 2012 The McGraw-Hill Companies. All Rights Reserved
13-13
13
INCREASING THE SEVERIT Y OF PUNISHMENT
 Longer prison term increases crime cost, shifting MC (supply)
curve upward
 BUT -- Elasticity close to zero (almost no impact of increasing
severity of punishment on deterring crime)
 Why?
 Longer prison term causes offsetting changes
 Harden criminal: lower anguish cost shifts MC (supply) shifts
downward
 Prison schooling: skill acquisition shifts MC (supply) downward
© 2012 The McGraw-Hill Companies. All Rights Reserved
13-14
14
EDUCATION AND CRIME
 Education increases wages, decreasing crime
 High-school graduation wage premium
 High-school graduates earn 50% more than those who do not
graduate high school.
 College wage premium
 College graduates earn twice as much as high school graduates
(100% more)
© 2012 The McGraw-Hill Companies. All Rights Reserved
13-15
15
LAWFUL OPPORTUNITIES AND CRIME
 Studies of link between unemployment rate and crime
 Weak relationship between crime and overall unemployment rate
 Teenage crime (first-time offenders) sensitive to unemployment rate
 Studies of link between lawful wages and crime
 Increase in lawful wage increases opportunity cost, shifting MC
(supply) upward
 Low-skilled workers: Elasticity (crime, wage) between -1.0 and -2.0
 10% increase in wages decreases crime between 10% and 20%
 Improving job prospects for low -skilled workers reduces crime
© 2012 The McGraw-Hill Companies. All Rights Reserved
13-16
16
EDUCATION-CRIME LINK FOR HIGHSCHOOL EDUCATION
 Recent study by Lochner and Moretti (2004) examines the
education-crime link for high school education
 Additional year of high school:
 0.10 percentage point decline for white males and 0.40 percentage
point decline for black males
 Graduation decreases crime participation rates of white
males:
 9% for violent crime; 5% for drug crime; 10% for property crime
 Elasticity (Arrest rate, Graduation rate) = -2.0 (violent) and -1.30 (motor
vehicle)
 Effects of preventing a dropout
 Cost per year of schooling = $6,000
 Benefit to student = $8,400 more per year
 Benefit to society through reduction in crime = $1,600 per year for rest
of work/crime life
 Benefits greatly outweigh costs
© 2012 The McGraw-Hill Companies. All Rights Reserved
17
THE OPTIMAL AMOUNT OF CRIME?
 How much crime should we choose?

Society has a limited amount of resources to allocate to crime
prevention
 Victim Costs associated with different crimes vary
 Costs include: costs of injury, recovery time, lost property
 Estimated cost per victim: $370 (larceny), $1,500 (burglary), $4,000
(auto theft), $13,000 (armed robbery), $15,000 (assault)
 Are some crimes less expensive to experience than to
prevent?
© 2012 The McGraw-Hill Companies. All Rights Reserved
13-18
18
THE OPTIMAL AMOUNT OF CRIME?
Marginal Prevention
Cost:
Its more expensive to
prevent more crimes.
Marginal Victim Cost:
Since we focus on one
particular crime in this
example (burglary)
marginal cost is constant
($1,500)
© 2012 The McGraw-Hill Companies. All Rights Reserved
Logical for
government to
allocate scarce
resources to
prevention of crimes
where costs of
prevention are lower
than costs to victims.
19
APPLICATION:
WHY MORE CRIME IN BIG CITIES?
 Elasticity of crime rate with respect to size = 0.15
 10% increase in the population increases the crime rate by about 1.5
percent.
 Reasons presented by economists ( Glaeser and Sacerdote, 1996):
 More loot (25% of difference)
 Average value of crime $900 in city of 1mill, $550 in a small city (below
50,000)
 Lower probability of arrest (15% of difference)
 Pool of suspects larger, lawful citizens less likely to help their neighbor
© 2012 The McGraw-Hill Companies. All Rights Reserved
13-20
20
APPLICATION:
WHY MORE CRIME IN BIG CITIES?
© 2012 The McGraw-Hill Companies. All Rights Reserved
13-21
21
APPLICATION:
WHY DID CRIME DECLINE?
© 2012 The McGraw-Hill Companies. All Rights Reserved
22
APPLICATION:
WHY DID CRIME DECLINE?
© 2012 The McGraw-Hill Companies. All Rights Reserved
23
DISCUSSION QUESTIONS
 Describe the evidence used either by Levitt or Greenberg to
explain why they believe better policing strategies do not
contribute to the decline of crime.
 Describe the evidence used by Levitt to explain why he
believes gun control laws do not contribute to the decline of
crime.
 Describe the evidence used by Levitt to explain why he
believes the number of police do contribute to the declines in
crime.
© 2012 The McGraw-Hill Companies. All Rights Reserved
24
CAN POLICING STRATEGIES REDUCE
THREAT OF CRIME?
 Economists consistently find that more arrests are associated with less
crime (Blumstein, Nagin, and Cohen, 1978; Cameron, 1988; and Levitt,
1995)
 So some things police do can reduce crime, but some tactics may be
more successful than others.
 Examples:
 Direct Patrolling – concentrates police resources on small geographic areas
using detailed information on crimes and complaints to determine where/when
to set up patrols.
Findings support declines in crime in “hot spots” but it may only divert crime
 Problem Oriented Policing – citizens report which crime-related difficulties are
bothering them and police work to address those concerns.
Problem is that what people talk about as being the most pressing problems, may
just be the ones that are described most eloquently, not the most costly crimes
 Zero-tolerance Policing – sometimes called “Broken Windows” based on theory
that people commit crimes where they believe they can get away with them
Verdict still out on this policy
 Stop and Frisk – police officer suspects someone of committing a crime they
can stop and question them and frisk them to see if they are carrying a weapon
 Will hear from all of you on what you think of this policy
© 2012 The McGraw-Hill Companies. All Rights Reserved
25
CAN GUN CONTROL REDUCE THREAT OF
CRIME?
 Guns allow people to cause (or threaten) severe physical
damage, without exerting great strength of skill, and without
coming extremely close to target.
 Guns are also used for hunting and for protection. At least
several hundred thousand times a year people use guns to
ward off attackers. Guns are also used for crime.
 Empirical evidence on gun control:
 Lott (1998) concentrates on state laws that require a gun permit for
a concealed weapon.
Lott finds these laws cut murder, rape and aggravated assault rates
Note-some of these declines are for gun owners themselves, so this is not
evidence in favor of gun prohibition
 Duggan (2001) reviews this research and makes some statistical
adjustments that lead to the conclusion that these laws have no
effect on violence reduction
 Overall empirical evidence on gun control laws are weak
© 2012 The McGraw-Hill Companies. All Rights Reserved
26
ROLE OF LEGALIZED ABORTION
 Crime rates higher among children born to reluctant parents
 Abortion decreased number of unwanted births
 Availability of abortion in 1970s reduced the number of
people maturing in crime -prone years in 1990s--a favorable
demographic change
 Cut crime rate by 10%; responsible for one third of crime drop
 Caution: Other studies show smaller effect
© 2012 The McGraw-Hill Companies. All Rights Reserved
13-27
27