Economics and Crime

Syed Mahfujul Haque Marjan

Course Instructor
 Why crime and economics?
• Why do we need a book on crime and economics? At first glance
the reader might wonder what economics can bring to the study of
crime. As Levitt and Miles point out:
“The casual observer might expect that economics has little to
contribute to the understanding of criminal activity.
Economics is a discipline seemingly concerned with market-
based transactions in which parties act purposefully to realize
the benefits of exchange. In contrast, many criminal acts,
such as homicide and theft, are inherently nonconsensual,
even coercive.
Moreover, many crimes appear to be acts of impulse or
emotion rather than the kind of rational decision making
associated with market behavior.”
• Over recent years economists have played an increasing role
in research and policy on crime, crime reduction and criminal
justice. This has taken many forms.
• Following Gary Becker’s landmark 1968 article, economic
debate on crime in the 1970s concentrated in particular on
developing economic theories of criminal behavior and the
effect of criminal justice sanctions.
• The improvement of data available through the criminal
justice system has allowed economists to use their favoured
forms of analysis in this field.
• Economists have undertaken cost–benefit analyses of crime
reduction and criminal justice interventions, estimated the
costs of different types of crime and contributed to the
development of criminal justice policy.
 Why isn’t economics more prominent
in the study of crime?
• Until fairly recently, economists and economics have not
tended to be prominent in the development of criminal
justice policy. Reflecting on the situation in the USA in
the mid 1990s, there might have been some truth in
American political scientist DiIulio’s observation that:

“As crime has risen to the top of the nation’s domestic

policy agenda, so has the need for a body of policy-relevant
knowledge about crime, for theoretical ideas and empirical
findings that can be translated into popular discourse and
carved into public laws.
To be frank, the professional criminologists,
sociologists, political scientists, law professors,
public management specialists and self-styled
practitioner-scholars who have dominated the field
are incapable of meeting this challenge….. In my
view, therefore, criminal justice is a field that needs
to be conquered by economists.”
UK, Patrick (now Lord) Carter’s first review of the criminal
justice system (Carter 2003) drew on economic concepts both
to understand the problem (a demand-led system) and
to propose solutions (an overall approach to sentencing which
would better match supply and demand to improve cost-
effectiveness).
In a speech in 2007, Lord Chief Justice of England and Wales,
the Lord Nick Phillips , drew on economic thinking when he
noted that: “If you decide to lock up one man for a minimum
term of 30 years, you are investing £1 million or more in
punishing him. That sum could pay for quite a few surgical
operations or for a lot of remedial training in some of the
schools where the staff are struggling to cope with the
problems of trying to teach children who cannot even
understand English.” (Philips 2007: 6)
“In Bangladesh, the government
spends nearly 170 crore taka
yearly (+-) for whereas you can
build 10/12 20 storied residential
halls with this money for the
University of Dhaka.”
In the USA, concern over rising prison numbers has
also increasingly been framed in economic terms.
Recently, the PEW Center on the States (2008: 3)
reported:
“more than one in every 100 adults is now confined
in an American jail or prison.”
The Center also reported that prison costs of USA
rose to $44 billion in 2007 from $10.6 billion
of1987.
Crime: There is a vibrant debate among
criminologists and policy-makers about the nature of
crime.
For criminologists this argument ranges from: debates
about the reliability of crime statistics; to whether or
not the experiences and perceptions of individual
victims and offenders can ever be fully understood by
others (be they researchers or police officers).
Economics The study of economics arises from the
scarcity of resources. Wherever there is scarcity
individuals and society must decide how to divide
them up.
1. an emphasis on the role of incentives in
determining the behaviour of individuals,
whether they are criminals, victims, or those
responsible for enforcing the law;
2. a focus on broad, public policy
implications rather than evaluation of
specific, small-scale interventions; and
3. the use of cost–benefit analysis as the
metric for evaluating public policies.
 Introduction to Economic Theories
The word ‘economics’ comes from the Greek,
oikonomikos, literally household management
and, along with philosophy and politics.
The need for economics arises from scarcity.
As Robbins (1945: 15) writes, ‘Here then is
the unity of subject of Economic Science;
the forms assumed by human behaviour in
disposing of scarce means’. Because
resources are not limitless, economics seeks
to make the best use of what is available.
For a viable economic system, trade is needed. If
trade is to succeed, law and order is required.
Thus, application of economics ranges from the
‘balancing the books’ approach of early economic
thought, to the creation of wealth, welfare,
sustainability and law and order.
Early economic thinkers did not consider their
subject a stand-alone discipline. Two of the
earliest, Chanakya and Aristotle, writing
independently two millennia ago, are typical in that
they saw economics as part of state-craft overall.
In the Arthashastra (‘Science of Material
Gain’ or ‘Science of political economy’ in
Sanskrit) Chanakya considered (amongst
many other topics) what we would call
economics as a part of the welfare and
collective ethics of a society in general. In
order for a state to thrive, Chanakya argued,
law and order must be maintained.
To Aristotle also, as with many later economic
philosophers, economic thought was bound up
intrinsically with ethics.
Aristotle taught that economics is concerned
with both the household and the polis and that
economics deals with the use of things
required for the good (or virtuous) life .
As a pragmatic or practical science,
economics is aimed at the good and is
fundamentally moral. Because Aristotle saw
that economics was embedded in politics, an
argument can be made that the study of
political economy began with him.
The Romans, recognizing the benefits of
trade, also saw justice and economic
welfare as enjoying a symbiotic relationship.
Justinian (from whom we derive the
word ‘justice’) went so far as to give one of
the principles of fair trade as ‘tantum
bona valent, quantum vendi possunt’ (‘goods
are worth as much as they can be
sold for’). Sometimes, however, these
amounts may not be self-evident.
Similarly, Ibn Khaldûn of Tunisia (1332–1406) saw
economic theory as inextricably linked with history.
In Muqaddimah, Ibn Khaldûn elaborates theories of
production, value, distribution and cyclical
growth/decay which collectively form a framework
for his consideration of, and explanation for, history.
আমেরিকাি ৪০তে প্রেরিমেন্ট প্রিানাল্ড রিগ্যান ১৯৯৩
িামে রনউইয়কক টাইেমি প্রেয়া তাি এক রিখ্যাত িাক্ষাৎকামি
িমেরিমেন, “আমি মি ত োিোদের সোিদে ১৪শ শ দির
আরব ইম হোসমবে ইবদে খোলেদু ের উপদেশটো তপশ
িরদ পোমর? মিমে বদলমিদলে, “শুরুর মেদি এিটো
সোম্রোদযের িদরর হোর িি থোদি মিন্তু রোযস্ব আদ়ের
পমরিোণ থোদি তবমশ। অেেমেদি সোম্রোদযের
প েিোদল িদরর হোর তবমশ থোদি মিন্তু রোযস্ব
 Modern economic thought

Modern economic philosophers trace their

consideration of economics as a separate
discipline to Adam Smith, whose aptly titled
The Wealth of Nations was published in
1776. Smith writes, in book IV:
• “Political economy, considered as a branch of the
science of a statesman or legislator, proposes two
distinct objects: first, to provide a plentiful
revenue or subsistence for the people, or more
properly to enable them to provide such a
revenue or subsistence for themselves; and
secondly, to supply the state or commonwealth
with a revenue sufficient for the public services.
It proposes to enrich both the people and the
sovereign.”
Smith notes the increased level of production which
resulted from division of labour in the pin
manufacturing industry.
The Republic, Plato takes it as self-evident that ‘all
things are produced more plentifully and easily and
of a better quality when one man does one thing
which is natural to him . . . and leaves other things’
(Plato, The Republic: XVI – Socrates –
Adeimantus).
This advancement in society results, not from any
imposed plan, but from the self interest of all. In
Wealth of Nations he writes:
“It is not from the benevolence of the butcher, the
brewer or the baker, that we expect our dinner, but
from their regard to their own self interest. We
address ourselves, not to their humanity but to their
self-love, and never talk to them of our own
necessities but of their advantages.” (Smith 1776:
I.2.2)
Smith coins the (much overused) phrase ‘the
invisible hand’ of the market to describe how
all may benefit from specialization and trade.
 The market
[T]hey will need a market-place, and a money-
token for purposes of exchange. (Plato, The
Republic: Book II Socrates – Adeimantus)
As we have seen, a nation’s economic prosperity is
enhanced through specialisation in the production
of goods and services. However, in order to eat,
the tailor must be sure he can trade with the baker
and, in turn, the baker must be able to trade
with the tailor if he is to be clothed.
• Thus increasing economic prosperity
depends on the functioning of markets
where such trades may take place. By
utilising specialisation and trade, all agents
may produce and consume more from a
given set of time and materials than would
result if each became a Jack-of-all-Trades.
• Markets
The theory of markets, at its most basic level,
considers the demand for and supply
of a single good or service and how valuable it
is in terms of the agreed medium of exchange.
Thus there are three unknown levels to be set
in the market: the amount supplied to the
market, the amount demanded and the price at
which trades take place.
The relationship between demand and price
As we have seen one characteristic of consumption of a
good or service is that the consumer will eventually
become satiated with it. Consider, for example, the
enjoyment one might gain from eating chocolate cake. If a
customer buys a slice of cake and eats it, we might assume
there is a certain level of enjoyment or satisfaction derived
from this.
• If, however, the customer continues to eat
more and more cake, their enjoyment level
per slice will diminish. There may come a
point, in fact, when the continued eating of
cake will actually decrease their overall
wellbeing and enjoyment.
• The relationship between supply and price
Similarly, we may consider the baker’s
decision to supply cake to the market. It is
not unreasonable to assume the production
of cake requires some effort, for which the
baker must be compensated. By producing
more cake, the baker is giving up time
which might be spent in leisure.
• We may assume leisure itself is something
with which the baker may become satiated.
Therefore we see, the less time for leisure
the baker has after work, the more highly
they will value that leisure. In order to
motivate a baker to produce a relatively
greater amount of cake (and thereby take
relatively less leisure) they must be paid a
relatively greater amount of money. As the
price of cake varies, the baker will produce
at different levels.
• The relationship between supply and demand
Supply and demand is perhaps one of the most
fundamental concepts of economics and it is the
backbone of a market economy. Demand refers to how
much (quantity) of a product or service is desired by
buyers. The quantity demanded is the amount of a
product people are willing to buy at a certain price; the
relationship between price and quantity demanded is
known as the demand relationship.
Supply represents how much the market can offer.
The quantity supplied refers to the amount of a
certain good producers are willing to supply when
receiving a certain price. The correlation between
price and how much of a good or service is
supplied to the market is known as the supply
relationship. Price, therefore, is a reflection of
supply and demand.
 what can economics contribute to the study
of crime and the criminal justice system?

• We have seen stable and well-ordered societies are

likely to be those in which societal good is maximised.
Agents who do not trust each other are less likely to
trade and are therefore less likely to specialise. If an
agent turns from a productive job to (for example)
fraud, society is less well off because that agent’s
output has been lost, and because potential victims will
produce less if the return for their labour is more likely
to go to someone else.