ECONOMICS PROJECT

ECONOMICS, CRIME and LAW

NAME: SHIVANG VERMA

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 Criminal law and economics:

The economic analysis of criminal law began in 18th and early 19th century, by Bentham1 and
Becaria2. Most of the works present today with regards to legal economic scenarios are mostly
concentrated in the areas of optimal tradeoff between certainty and severity of punishment, fines,
imprisonment and economics of law enforcement and criminal procedure also a major part was
the deterrent and preventive steps and effects of criminal punishment3 (includes capital
punishment).
When taken in contrast to other laws criminal is no longer a pure field of common law, but most
of its doctrines are still drawn from common law rather than a statutory origin. Coming to the point
substantive doctrines of criminal law, as of the common law in general, can be given an economic
meaning and can indeed be shown to promote efficiency.
1. The major function of criminal law in a capitalist society is to prevent people from
bypassing the system of voluntary, compensated exchange-the "market," explicit or
implicit-in situations where, because transaction costs are low, the market is a more
efficient method of allocating resources than forced exchange. Market bypassing in such
situations is inefficient-in the sense in which economists equate efficiency with wealth
maximization4
2. Much of this market bypassing cannot be deterred by tort law that is, by privately enforced
damage suits. The optimal damages that would be required for deterrence would so
frequently exceed the offender's ability to pay that public enforcement and nonmonetary
sanctions such as imprisonment5 are required.
3. Such sanctions are extremely costly for a variety of reasons, and this, together with the
socially worthless character of most of the sanctioned conduct, has a number of
implications for efficient criminal law doctrine, such as that unsuccessful attempts should
be punished in order to economize on costlier punishments for completed crimes. The
threat of punishing attempts, as we shall see, makes the completed crime more costly in an
expected sense and therefore less likely to be committed.
The role and economics of deterrence: In the economic theory, crime is in a criminal’s interest.
Both conservatives and liberals accepted this premise. Conservatives argued that we needed
1
J. Bentham, and introduction to the principles of moral and legislations
2
C. Becaria on Crimes and punishment.
3
For a comprehensive bibliography of research on the economics of crime and punishment to 1980, see The
Economics of Crime 411-26 (R. Andreano &J. Siegfried eds. 1980); and for an excellent review of almost the entire
literature, see D. Pyle, The Economics of Crime and Law Enforcement (1983).
4
See R. Posner, The Economics ofJustice 66-107 (1981).
5
Even the fine, we shall see, is not a purely monetary sanction equivalent to tort
damages.

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more punishment to raise the cost so high that crime was no longer in a criminal’s interest. Liberals
argued that we needed more jobs to raise the opportunity cost so high that crime was no longer in
a criminal’s interest.6 Longer sentences didn’t reduce crime as much as expected because
criminals aren’t good at thinking about the future; criminal types have problems forecasting
and they have difficulty regulating their emotions and controlling their impulses. In the heat of the
moment, the threat of future punishment vanishes from the calculus of decision. Thus, rather than
deterring (much) crime, longer sentences simply filled the prisons.7
The main thing the criminal law punishes is the pure coercive transfer, or, as it might better be
described in a case of tax evasion or price-fixing, the pure involuntary transfer, of wealth or utility.

Economics and Law:

The most prevailing view among those who predict the future of law and economics is that it will
become more technical, more rigorous, and more mathematical. Just like its mother discipline,
economics.
Economics, whose subject, at the most fundamental level, is not money or the economy but the
implications of rational choice, is an essential tool for figuring out the effects of legal rules.
Economic analysis of law comprises three closely related enterprises: predicting what effect
particular legal rules will have, explaining why particular legal rules exist, deciding what legal
rules should exist. While many people believe that the consequences of a law are not the only
thing determining whether it is good or not, very few believe that consequences are irrelevant. To
the extent that economic analysis helps us perceive consequences of laws and legal decisions,
especially consequences that are not obvious, it is useful to anyone trying to make or understand
law. Using economics to explain the existence of the legal rules that we observe.
The second enterprise is using economics to explain the existence of the legal rules that we
observe. Legal rules are created by legislatures and courts—and we have no very good theory,
economic or otherwise, to explain the behavior of either. From a theoretical standpoint, the project

6
http://bruegel.org/2016/05/the-economics-of-crime-and-punishment/
7
http://bruegel.org/2016/05/the-economics-of-crime-and-punishment/

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is part of the field of economics known as public choice theory, an area still very much on the
intellectual frontier.
As a conclusion one may say that criminal acts are a source of enormous social costs that no
society can ignore, and economists have their own place in the field of law and no one can deny
it.

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