The following essay briefly describes the relationship between economics and criminal justice issues from law making to criminology to policy evaluation. Links to relevant web pages can be found at the bottom of this page.

Economics has as much to say about crime and criminal justice as any other social science. In fact, economics is especially well suited for crime and criminal justice studies because economic principles can explain every part of the criminal justice system and many of the motivations behind criminal acts. Many people misperceive economics as too mathematical, in fact, economists engage in many varied forms of social analysis.

Before we can break the law, the laws must be written. In the United States and elsewhere the legislative process is one of the most studied government activities. There are many different ways to study how legislatures decide that certain actions should be illegal and what sanctions should be imposed on law-breakers. Economists contribute through financial analyses, positive political economy studies, and radical political economy studies. Financial analysis can range from simple projections of the dollar costs of new laws to more complex Benefit-Cost Analyses. Positive political economy, a relatively new area of research, assumes politicians want to maximize their returns in the form of reelection and attempts to predict how law makers will act. Radical political economy takes a different approach by analyzing the political and economic system as a whole unit which is subject to historical inertia and class conflict. Whenever we look at the law making process we find economic analysis to be one of the most insightful approaches.

Crimes are all about force: getting someone to do something they otherwise would not want to do and economics is all about the struggle to get what we want, so the two have much in common. Most criminals use of violence (or the threat of violence) or deception to force people into doing something they otherwise would not. Violent crimes include homicide, rape, theft, robbery, arson and vandalism (violence against property counts too). Deception crimes include fraud, money laundering, tax evasion, counterfeiting, and embezzlement. A third type of force can also be considered a criminal act in certain circumstances. Negotiation and trade is a peaceful form of force that brings about mutual gains to both sides (unlike violence and deception). The study of mutually beneficial trade comprises much of the body of economic thought. However, legislatures the world over have prohibited and restricted certain trades from the beginning of history. Illegal markets arise when a product or service (e.g. heroin or prostitution) is illegal to buy, sell, solicit, possess or use. Black markets arise when people avoid restrictions placed on markets such as bootlegged CDs and DVDs. We even have special crimes called restraint of trade crimes including the abuse of monopoly or monopsony power and price fixing. Clearly when a crime produces revenue (theft, fraud, and drug sales) there are strong economic motives and economics provides valuable insights into criminal actions. But we can actually apply economic principles to every sort of crime.

In many Criminal Justice and Criminology courses students are taught about the Economic or Rational Choice theory of crime. Popularized by Nobel Laureate Gary Becker, this theory assumes that all people act rationally by comparing the benefits and costs of their actions. If the action produces more benefits that costs then the person will undertake the action; even if it is a criminal act. Becker paid particular attention to how changing the risk of apprehension/conviction and changing penalties can deter criminal activity. This theory applies to all crimes, even crimes of passion. Becker also notes that increased employment and fostering a greater sense of morality can raise the opportunity cost of crime and thus deter crime. A very important aspect of Becker’s work is the concept of a crime equilibrium where society has the correct amount of crime. Society can only affect crime through its policies which cost people directly in the form of taxes and indirectly through losses of civil liberties. So society demands a certain amount of crime which is determined by our willingness to pay to deter crime.

A broader concept of the Economic Approach to Crime, utilizes the concept bounded rationality introduced by Herbert Simon. In this version the criminal still compares the benefits and costs of his/her actions but her/his cognition of benefits and costs is constrained by many factors. Time constraints represent one of the most important constraints on our ability to rationally evaluate a decision opportunity. Criminals often make decisions based on newly acquired information (such as a potential mugger meeting a person with valuable jewelry) and may not have much time gather information before the opportunity disappears (the jewelry-wearing person walks away). With such a narrow window of opportunity, the potential mugger's brain may remember that mugging can result in arrest but it’s doubtful the exact consequences of conviction for mugging enters into the thought process. Under this approach to crime, deterrence through harsh penalties and more policing lose their effectiveness because these policy changes are essentially ignored by potential perpetrators. The bounded rationality theory of crime plays an important role in Marcus Felson's Routine Activities approach to crime analysis and prevention.

These economic approaches focus on an individual's perception of the economic advantages and disadvantages of a decision to commit a criminal action. A complementary perspective examines the capacity of an economy to provide legal means for individuals to adapt to changes in the structure of economic opportunities. In legal responsiveness theory Professor Joan Hoffman of the Economics Division argues that in the dynamic world of market economics analyzing access to legal adaptive mechanisms is an important element of crime analysis.

Economists also contribute to a very different view of crime and criminal justice. Radical Political Economy examines the political and economic systems from a Marxian perspective. From this perspective capitalism uses the legal system to strengthen itself and produce profits for the owners of capital. The criminal justice system plays an important role. The institution of private property can only be maintained with a state-sponsored police force and criminal sanctions for those who violate property laws. Some radical researchers propose that the criminal justice system is doomed to fail because as long as some crime exists in society capitalism will not receive the blame for problems like chronic unemployment and the growing gap between the rich and the poor. Only deviant acts of the poor become criminal while the deviances of the rich remain ignored.

Even the proponents of Radical Perspectives agree that in the current criminal justice system the practitioners, the beat officers, detectives, prosecutors, corrections officers and probation officers, have difficult and important jobs maintaining order. Economics affects the daily activities of every person that works in the criminal justice system. All government agencies work under budgets and are obligated to tax payers to maximize efficiency. Economic principles can help public managers balance the demands of the job with maintaining efficiency. One economic tool that helps us evaluate the efficiency of criminal justice policies is Benefit-Cost Analysis. Benefit-Cost Analysis identifies all costs and consequences (good and bad) of a policy and then compares the dollar value of all the benefits against the dollar value of all the cost. If the benefits exceed the costs, then the policy is successful. Of course, it cannot be that easy. For one thing, when we look at the benefits of police patrols we have to place a dollar value on the feeling of safety we gain from those patrols. While everyone agrees safety is worth paying for, we have a much harder time placing a price tag on it.

The study of economics provides many insights into the world of crime and criminal justice. Paired with other social sciences, economics in its varied forms helps improve public policy.

Relevant Links

The best selling book Freakonomics has renewed interest in the economics of crime.

IRS’ Criminal Investigations http://www.treas.gov/irs/ci/index.htm

US Department of Justice Anti-Trust Division http://www.usdoj.gov/atr/index.html

US Securities and Exchange Commission http://www.sec.gov/index.htm

United Nations Office of Drugs and Crime  http://www.unodc.org

Gary Becker's Wikipedia profile en.wikipedia.org/wiki/Gary_Becker  

The Rich Get Richer and the Poor Get Prison http://paulsjusticepage.com

Articles on Crime by Members of the Economics Division

Joan Hoffman

2003 "Legal responsiveness: a contribution to a structural theory of economic crime." International Journal of Social Economics. Vol 30 No. 3

2001 "Summary of toward a structural theory of economic crime." Proceedings of the 5th Biennial Conference on International Perspectives on Crime, Justice and Public Order. Bologna 2000.

Sustainable economic development: a criminal justice challenge for the 21st century. Crime, Law and Social Change. Vol 34 No 3.

1998 "Economic transformation, disentitlement and women's arrest for street crimes: New York City 1960-96" in Karmen,A. (ed.) Crime in New York City.

1997 "Macroeconomic conditions and New York City women's drug arrest rates: 1960-88". Social Justice 24 (1)P. 82-106.

Jay Hamilton

Hamilton, J.P. (2004, Forthcoming). Receiving marijuana and cocaine as gifts and through sharing. Substance Use and Misuse 39.
THIS IS A MARCEL DEKKER PUBLICATION

Hamilton, J.P. (2003). Benefit-cost analysis. In J. Rabin (Ed.). Encyclopedia of Public Administration & Public Policy. New York: Marcel Dekker Publishing.