Criminal Behaviour

Although economic analysis is not particularly relevant in explaining some crimes of passions and violence (for example, murder and rape), it does provide interesting insights on such property crimes as robbery, burglary, and auto theft.

Tub LA3TI

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Through extension, the theory of rational consumer behaviour provides some useful insights on criminal behaviour. Both the lawful consumer and the criminal try to maximize their total utility (or net benefit). For example, you can remove a textbook from the campus bookstore either by purchasing it or stealing it. If you buy the book, your action is legal; you have fully compensated the bookstore for the product. (The bookstore would rather have your money than the book.) If you steal the book, you have broken the law. Theft is outlawed because it imposes uncompensated costs on others. In this case, your action reduces the bookstore's revenue and profit and also may impose costs on other buyers who now must pay higher prices for their textbooks.

Why might someone engage in criminal activity such as stealing? Just like the consumer who compares the marginal utility of a good with its price, the potential criminal compares the marginal benefit from an action with the price or cost. If the marginal benefit (to the criminal) exceeds the price or marginal cost (also to the criminal), the individual undertakes the criminal activity.

Most people, however, do not engage in theft, burglary, or fraud. Why not? The answer is that they perceive the personal price of engaging in these illegal activities to be too high relative to the marginal benefit. That price or marginal cost to the potential criminal has several facets. First, there are the guilt costs, which for many people are substantial. Such individuals would not steal from others even if there were no penalties for doing so; their moral sense of right and wrong would entail too great a guilt cost relative to the benefit from the stolen good. Other types of costs include the direct costs of the criminal activity (supplies and tools) and the forgone income from legitimate activities (the opportunity cost to the criminal).

Unfortunately, guilt costs, direct costs, and forgone income are not sufficient to deter some people from stealing. So society imposes other costs, mainly fines and imprisonment, on lawbreakers. The potential of being fined increases the marginal cost to the criminal. The potential of being imprisoned boosts marginal cost still further. Most people highly value their personal freedom and lose considerable legitimate earnings while incarcerated.

Given these types of costs, the potential criminal estimates the marginal cost and benefit of committing the crime. As a simple example, suppose that the direct cost and opportunity cost of stealing an $80 textbook are both zero. The probability of getting caught is 10 percent, and, if apprehended, there will be a $500 fine. The potential criminal will estimate the marginal cost of stealing the book as $50 (= $500 fine x .10 chance of apprehension). Someone who has guilt costs of zero will choose to steal the book because the marginal benefit of $80 will exceed the marginal cost of $50. In contrast, someone having a guilt cost of, say, $40, will not steal the book. The marginal benefit of $80 will not be as great as the marginal cost of $90 (= $50 of penalty cost + $40 of guilt cost).

This perspective on illegal behaviour has some interesting implications. For example, other things equal, crime will rise (more of it will be bought) when its price falls. This explains, for instance, why some people who do not steal from stores under normal circumstances participate in looting stores during riots, when the marginal cost of being apprehended declines substantially.

Another implication is that society can reduce unlawful behaviour by increasing the price of crime. It can nourish and increase guilt costs through family, educational, and religious efforts. It can increase the direct costs of crime by using more sophisticated security systems (locks, alarms, video surveillance) so that criminals will have to buy and use more sophisticated tools. It can undertake education and training initiatives to enhance the legitimate earnings of people who might otherwise engage in illegal activity. It can increase policing to raise the probability of being apprehended for crime, and it can impose greater penalties for those who are caught and convicted.

Part Two • Microeconomics of Product Markets chapter SUMMARy

1. The income and substitution effects and the law of diminishing marginal utility help explain why consumers buy more of a product when its price drops and less of a product when its price increases.

2. The income effect implies that a decline in the price of a product increases the consumer's real income and enables the consumer to buy more of that product with a fixed money income. The substitution effect implies that a lower price makes a product relatively more attractive and, therefore, increases the consumer's willingness to substitute it for other products.

3. The law of diminishing marginal utility states that, beyond a certain quantity, additional units of a specific good will yield declining amounts of extra satisfaction to a consumer.

4. We assume that the typical consumer is rational and acts based on well-defined pref

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