Recht und Ökonomie Law and Economics · Recht und Ökonomie (Law and Economics) ... SS 2015 (8) Criminal Law [Strafrecht] and ... − Changes in various crime categories & regions

Prof. Dr. Friedrich Schneider

Institut für Volkswirtschaftslehre

http://www.econ.jku.at/schneider

Recht und Ökonomie

(Law and Economics)

LVA-Nr.: 239.203

SS 2015

(8) Criminal Law [Strafrecht] and Economics of Crime

SS 2015 Law & Economics 1 / 44

Content (1-2)

(1) Economics of Crime

• Introduction

• Crime & Rational Decision Making

• Deterrence & Optimal Level of Crime

(2) Crime Incentives

• Basics

• USA: Rates of Crime in 1990s

• USA: Why Crime Decline in 1990s? (Factors)

(3) Risk and Deterrence

• Basics

• USA: Empirical Results

• Draconian Punishments


Content (2-2)

(4) Deterrence of Death Penalty

• Basics

• Theories of Deterrence

• How to ‘Measure’ Death Penalty?

• Death Penalty: Empirical Evidence

− Donohue & Wolfers (I)

− Donohue & Wolfers (II)

− Dezhbakhsh & Shepherd

• Conclusion Deterrence Effect of Death Penalty


1. Economics of Crime 1.1. Introduction

� Crime causes costs:

− Economic problem of optimal allocation of resources

(e.g. cops, judges, prosecutors, jails).

� Empirical evidence for influence of economic variables

on the frequency of crime.

� Employment of economic models and econometric

techniques to analyse relationship between:

− Crime;

− Deterrence [“Abschreckung”] � sentence [“Gerichtsurteil”, Strafe]

� fine [“Geldstrafe”] / imprisonment [“Gefängnisstrafe, Haft”] ; and

− economic situation.


1. Economics of Crime 1.2. Crime & Rational Decision Making

� Criminal's rational perspective:

− Expected punishment [“Bestrafung, Strafe”] (EP) is decisive.

− EP equals: probability [“Wahrscheinlichkeit”] of punishment

multiplied by size of imposed punishment

� EP = q * P , where

• q = probability of punishment being imposed, and

• P = cost of punishment to the criminal (in monetary terms).


1. Economics of Crime 1.2. Crime & Rational Decision Making (cont.)

− Comparison of expected punishment with expected

private benefit of crime: With risk neutrality &

rationality � Crime will be committed if and only if

private benefit exceeds expected punishment.

� Alternative criminal's rational perspective:

− If (expected) utility [“Nutzen”] from crime is larger than

(expected) utility from alternative time use – like

legal work � crime will be committed.


1. Economics of Crime 1.3. Deterrence & Optimal Level of Crime

� Crime deterrence [“Abschreckung”] by increasing expected

punishment (EP):

− Raising the punishment, and / or

− raising the probability of punishment.

� BUT: Law of increasing opportunity costs /

diminishing returns [“Opportunitätskosten” / “abnehmende Erträge”] :

− Each (constant) increment of punishment or of probability of

punishment costs more and more – in terms of expenditures on

law enforcement [“Gesetzesvollzug, Strafverfolgung”] .


1. Economics of Crime 1.3. Deterrence & Optimal Level Crime (cont.)

� Costs of deterrence & law of diminishing returns �

optimal level of crime is where:

− Marginal costs of deterrence are equal to their

marginal revenue (return).

� In all countries the optimal level of crime is greater

than zero!

� “… crime is a normal social phenomenon whose complete

abolishment by government is neither possible nor desirable.”

(Gary Becker, 1968).SS 2015 Law & Economics 8 / 44

2. Crime Incentives 2.1. Basics

� Negative incentives regarding reduction of crime:

− Increase probability of sentencing, and / or

− increase imprisonment or fines.

� Positive incentives regarding reduction of crime:

− Increase wages;

− reduce unemployment;

− increase social benefits [“Sozialleistungen, -hilfen”] , and / or

− improve rehabilitation [“Resozialisierung”] .


2. Crime Incentives 2.1. Basics (cont.)

� Many studies – showing a variety of influences of

variables – follow from the economic model of crime:

− Unemployment;

− job availability;

− inequality in income (distribution);

− police intensity;

− risk of sanction [“Strafmaßnahme”] ;

− demography (age, different nationalities, ‘racial composition’);

− drug consumption; and

− migration.


2. Crime Incentives2.2. USA: Rates of Crime in 1990s

� Experts predicted an explosion in crime in the USA in

the early and mid-1990s.

� But: Why did crime rates (unexpectedly) fall in the

USA during the 1990s?

− 1991–2001: Homicide [“Tötungsdelikte”] rates plunged by 43 %.

− FBI crime index:

• violent crime fell by 34 %;

• property crime [“Eigentumsdelikte”] fell by 29 %.

− Changes in various crime categories & regions � see next 2 slides.


Table 2.1. Trends in specific categories of crime, USA, periods 1973-1991 & 1991-2001 (in %).

SS 2015 Law & Economics

Source: Levitt, Steven D. (2004), Understanding Why Crime Fell in the 1990s: Four Factors that Explain the

Decline and Six that Do Not, Journal of Economic Perspectives, 18(1), p. 166.

12 / 44

Table 2.2. Changes in Crime Rates for Different Population Groups, USA, period 1991-2011 (in %).




13 / 44

2. Crime Incentives 2.3. USA: Why Crime Decline in 1990s?

� Reduction of crime rates in USA during the 1990s �

Article by S. D. Levitt:

Understanding Why Crime Fell in the 1990s: Four Factors

that Explain the Decline and Six that Do Not (2004).

� S. D. Levitt identified in his study:

− Four major factors responsible for reduction; and.

− six factors that played little / no role.

− Overview of factors � see next slides.


2. Crime Incentives 2.3.1. Factors Explaining US-Decline

� Four major factors responsible for reduction (Levitt):

(1) Increase in number of police forces in the USA.

• Number of police forces increased by 50,000–60,000 in 1990s.

• If elasticity of crime with respect to the number of police forces

is –0.40 � the increase in police forces 1991–2001 …

− can account for a crime reduction of 5 – 6 %;

− can explain between 1/5 & 1/10 of overall decline in crime.

• Most commonly used estimate of costs of crime to victims =

roughly USD 500 billion annually in the early 1990s.


2. Crime Incentives 2.3.1. Factors Explaining US-Decline (cont.)

(2) Increased number of prison inmates [“Insassen, Häftlinge”] .

• By 2000 more than 2 million individuals were imprisoned at any

point in time; roughly 4 times the quantity of 1972; more than

half of that prison population growth occurred in the 1990s.

• Theory linking increased imprisonment to reduced crime �

two effects:

− Incapacitation [“Unfähigkeit“] effect: by imprison offenders,

they are unable to commit further crimes.

− Deterrence ["Abschreckung“] effect: increased threat of

punishment induces forward-looking criminals not to

commit crimes they otherwise would find attractive.


Figure 2.1. Adult imprisonment rate, USA, period 1950-2000 (adults imprisoned per 100,000 US-residents)




17 / 44


(3) Reduced consumption of crack / other drugs.

• Crack cocaine ["Crack-Kokain"] facilitated sale of cocaine by the

dose for a retail price of USD 5–10.

The trade proved highly lucrative, leading to violence as rival

gangs competed to sell the drug.

• Homicides NY City in 1988: > 25 % of these homicides were

crack-related; almost all of them involved crack distribution.

• As crack consumption declined from 1991 to 2001, young black

males experienced a homicide [“Tötungsdelikte”] decline of 48 %,

older black males of 30 %, young white males of 42 % and older

white males of 30 %.



(4) Legalized abortion [“Schwangerschaftsabbruch”] .

• Decision of US Supreme Court in January 1973 (‘Roe vs. Wade’)

� legalization of abortion in 1973 + 18 years later = year 1991

[also mentioned in course chapter two].

• Theory = Unwanted children are at greater risk for crime;

and legalized abortion leads to a reduction in the number of

unwanted births .

• Extrapolating estimates of Donohue & Levitt (2001) for period

1991–2000 � legalized abortion is associated with 10 % decline

in homicide, property crime & violent crime rates � would

account for 25–30 % of observed crime reduction in 1990s.


2. Crime Incentives 2.3.2. Factors Not Explaining US-Decline

� Six Factors that played little / no role (S. D. Levitt):

(1) Strong US-economy in 1990s.

• Real GDP per capital grew by almost 30 % 1991–2001.

• Unemployment rate fell from 6.8 % (1991) to 4.8 % (2001).

• BUT: Violent crime does not vary systematically with

unemployment rate.

(2) Better strategies of police.

• Lack of empirical data.

• New York: Innovator in policing practices + high drop in crime

rates � BUT: NY police force grew 1991–2001 by 45 %.


2. Crime Incentives 2.3.2. Factors Not Explaining US-Decline (cont.)

(3) Demographic changes.

• In 2001, people over age of 65 had per capita arrest rates

approximately 1/50 the level of 15 – 19 year-olds.

• BUT: Number & share of 15 – 24 year-olds increased

� age group has a greatly elevated involvement in crime.

(4) Gun control laws [“Waffenrecht, -gesetze”] .

• Stricter requirements for background checks before a gun is

sold � BUT: Black market for arms.

• Gun buy-back programs � BUT: criminals unlikely participate.

• Bans on handgun acquisition / ownership.


2. Crime Incentives 2.3.2. Factors Not Explaining US-Decline (cont.)

(5) Laws enabling carrying of concealed [“verborgene”] weapons.

• Theory = armed victims raise costs faced by potential criminal.

• BUT: Empirical data show little basis for impact on crime.

(6) Increased use of death penalty [“Todesstrafe”] .

• In 1980s, a total of 117 prisoners were put to death in USA; that

number more than quadrupled to 478 in the 1990s.

• BUT: Any deterrent effect from death penalty cannot explain

decline in other crimes.

• BUT: Rarity of executions & long delays in doing so.


3. Risk and Deterrence 3.1. Basics

� Rationality assumed � probability of sentence (= fine

or imprisonment) relevant.

� Individuals may be:

− risk averse [“risikoavers, risikomeidend”] ,

− risk neutral [“risikoneutral”] , or

− risk lovers [“risikofreudig”] ;

− depending on their economic and sociological

situation.


3. Risk and Deterrence 3.1. Basics (cont.)

� Important: Product of probability of sentence (q) and

(expected) sentence (P) � q times P is relevant!

− Increasing P and reducing q is – in general –

more efficient.

� Fines [“Geldstrafen”] are – in general – preferred to

imprisonment, because being more efficient.

− Costs of imprisonment for society: Labour

resources lost plus costs of jailing.


3. Risk and Deterrence 3.1. Basics (cont.)

� Imprisonment [“Gefängnisstrafe, Haft”] :

− If individuals are risk averse, raising imprisonment

terms allows to lower probability of sanctioning

more than proportionally.

• Expected prison terms fall, thus costs to society decrease.

− If individuals are risk loving, raising imprisonment

terms allows to lower probability of sanctioning less

than proportionally.

• Expected prison terms rise, thus costs to society increase.


3. Risk and Deterrence 3.2. USA: Empirical Results

� Some empirical Results according to US-studies (from

the year 2005).

(1) Estimated costs of reducing property crimes [“Eigentumsdelikte”]

by one percent:

• More police officers: USD 34.0 million in a district (state);

• more prison sentences: USD 3.2 million (court costs);

• longer prison sentences: USD 2.4 million (prison costs).


3. Risk and Deterrence 3.2. USA: Empirical Results (cont.)

(2) Elasticity of property crimes [“Eigentumsdelikte”] (abbreviated

“PC”): A 10 % increase of …

• police officers reduces PC by 3.2 %;

• rate of imprisonment reduces PC by 4.8 %;

• length of imprisonment reduce PC by 8.5 %;

• increase in unemployment increases PC by 4.6 %.

• Larger impact on burglary and robbery;

• smaller impact on theft.


3. Risk and Deterrence 3.3. Draconian Punishments

� Draconian [“drakonisch, hart”] punishments may not be

appropriate because:

− Criminals lack income or wealth;

− judges may hesitate to convict (death penalty!);

− increased litigation leading to higher legal costs;

− of perverse incentives: steal bread and shoot baker;

− of disrespect for the law being ‘unjust’.


4. Deterrence of Death Penalty 4.1. Basics

� Background to death penalty / capital punishment [jeweils:

“Todesstrafe”] in the USA:

− Article ‘New York Times’ (Nov. 18, 2007): “Does death penalty

save lives? A New Debate”.

− http://www.deathpenaltyinfo.org/

� Some facts for the USA (time period 1946 - 08/2011):

− USA 1946-1997: Total 1,885 executions – or 1 execution per 320

reported homicides [“Tötungsdelikte”] .

− USA 1976-2003: 1 execution per 1,000 reported homicides.

− Texas 1976-08/2011: Total 472 executions.


4. Deterrence of Death Penalty 4.1. Basics (cont.)

� Further US-facts (USA; number of persons; time range 1997-2012):


USA / Year 1997 2003 2009 2012

Population (in Million) 267.78 290.79 307.01 313.91

Murder and non-negligent

manslaughter / Homicides18,208 16,528 15,399 14,827

Death sentences 266 151 118 78

Inmates on death row [“Insassen im Todestrakt”]

3,335 3,374 3,173 3,146

Total Executions USA 74 65 52 43

Executions Texas (in % of total)

37 (50.0 %)

24 (36.9 %)

24 (46.2 %)

15 (34.9 %)

Sources: Uniform Crime Report of Federal Bureau of Investigation (various years); Death Penalty Information Center (various years).

30 / 44

4. Deterrence of Death Penalty 4.2. Theories of Deterrence

� Economical theory:

− Raise price for murder for criminals � less murder.

� Behavioural (psychological) theory:

− Small likelihood is treated as zero probability; or

− low frequency with great publicity deters.

� Sociological theory:

− State-sanctioned executions reduce value of life;

implies: ‘brutalisation effect’ leads to more

homicides [“Tötungsdelikte”] .


4. Deterrence of Death Penalty 4.3. How to ‘Measure’ Death Penalty?

� ‘Measures’ for death penalty / capital punishment:

− Binary variable – death penalty law? Y/N.

− Persons sentenced to death (always annual data).

− Persons executed.

− Persons sentenced to death (per 100,000 inhabitants).

− Persons sentenced to death (per total sentences).

− Persons executed (per 100,000 inhabitants).

− Persons executed (per 1,000 prisoners).

− Persons executed (per prisoners on death row).

− Persons on death row.


4.4. Death Penalty: Empirical Evidence 4.4.1. Donohue & Wolfers (I)

� Study by J. J. Donohue & J. Wolfers (D&W): Uses and Abuses of

Empirical Evidence in the Death Penalty Debate (12/2005).

− They surveyed time series [“statistische Zeitreihen”] of executions

and homicides in the USA;

− compared the USA with Canada & compared non-death

penalty states with executing states;

− analyzed the effects of judicial experiments (comparing

affected states with unaffected states);

− surveyed the state panel data since 1934;

− assessed a range of instrumental variables approaches; and

− analyzed two state-specific execution moratoria [“befristete

Einstellungen / Aussetzungen”] .


4.4. Death Penalty: Empirical Evidence 4.4.1. Donohue & Wolfers (I) (cont.)

� Results of D&W-study (12/2005):

(1) Aggregate time series for the USA showed no clear correlation

between homicides and executions in the 20th century:

• 1900-1910: Roughly no correlation.

• 1910-1920: Executions drastic down, homicides tended up.

• 1920-1940: Executions & homicides increased.

• 1940-1960: Executions & homicides decreased.

• 1960-1970: Executions down, homicides drastic up.

• 1972-1976: Moratorium on executions, homicides up.

• 1976-1990: Executions up, homicides remained high.

• 1990-2000: Executions up, homicides drastic down.



(2) Comparison of six US-States without death penalty during

analyzed period (1960-2000) with rest of country:

• Six US-States: AK, HI, ME, MI, MN & WI.

• Rest of country: Abolition or moratorium and reinstatement

[“Wiedereinführung”] in all other states.

• Result of comparison (D&W):

− Very similar movement in the six US-States compared to

the overall USA-figures;

− high positive correlation between the two time series.

• Conclusion: There must be other factors at work!



� Main conclusions of D&W-study (12/2005):

(1) None of the approaches suggested that the

death penalty has large effects on the murder rate:

When D&W compared death penalty states with

non-death penalty states, they found no evidence of

any effect of executions on murder rates, either up

or down.



� Main conclusions of D&W-study (12/2005): (cont.)

(2) Year-to-year movements in homicide rates were

large, and the effects of even major changes in

execution policy were barely detectable.

(3) The U.S. data show not clearly whether the death

penalty has a deterrent or anti-deterrent effect.


4.4. Death Penalty: Empirical Evidence 4.4.2. Donohue & Wolfers (II)

� Survey by J. J. Donohue & J. Wolfers (D&W):The Death Penalty: No Evidence for Deterrence (2006).

� Main results of D&W (2006):

(1) “The view that the death penalty deters is still the

product of belief, not evidence”.

(2) “On balance, the evidence suggests that the

death penalty may increase the murder rate

although it remains possible that the death penalty

may decrease it”.


4.4. Death Penalty: Empirical Evidence 4.4.3. Dezhbakhsh & Shepherd

� Study by H. Dezhbakhsh & J. M. Shepherd (D&S):

The Deterrent Effect of Capital Punishment: Evidence from a

“Judicial Experiment” (2003).

� D&S focus in their before-and-after comparisons of

murder rate in the USA only on US-States that

abolished or adopted death penalty (pre- and post-

moratorium [“befristete Einstellung / Aussetzung”] data; time

period 1960-2000):


4.4. Death Penalty: Empirical Evidence 4.4.3. Dezhbakhsh & Shepherd (cont.)

− Many factors that affect crime (e.g. law enforcement, judicial,

demographic and economic variables) change only slightly

over a short period of time.

− Fast changes in a state’s murder rate following a change in its

death penalty law can be attributed to the legal change.

− Death penalty moratoria began and ended in different years in

different states.

• E.g. Rhode Island suspended death penalty in 1972,

reinstated it in 1977, and abolished it in 1984.



� D&S-results regarding before-and-after comparisons of

murder rate in USA (1 year; 2 & 3 year averages):

− Abolition: 10 - 21.9 % increase in homicides (mean).

− Reinstatement [“Wiedereinführung”] : 4.1 - 6.4 % decrease in

homicides (mean).

� BUT: ‘Control group’ of US-States that had no change

(regarding death penalty) showed very similar effects!



� BUT: D&S-results are not very robust:

(1) When introducing year-fixed-effects into the D&S-

study, the effect of executions on homicides

becomes statistically insignificant!

(2) D&S use absolute numbers of executions per year

� heavy influence of Texas.

• Omission of Texas has same effect as above!

(3) Using executions ‘per 1,000 prisoner’ or ‘per

100,000 residents’ again has same effect as above!


4.5. Conclusion Deterrence Effect of Death Penalty

� Empirical evidence is (very) inconclusive.

� Thus it cannot be employed to justify death penalty /

capital punishment [jeweils: “Todesstrafe”] .

� Should one turn to more ‘philosophical’ reasons and

justifications?

− E.g. government must act on the basis of a moral

obligation since inactivity (‘omission’) may

endanger its citizens?


References

Mentioned references:

Dezhbakhsh, Hashem, and Joanna M. Shepherd (2004), The Deterrent Effect of Capital

Punishment: Evidence from a “Judicial Experiment”, Working Paper No. 18, URL (accessed

Dec. 4, 2005):

http://law.bepress.com/cgi/viewcontent.cgi?article=1017&context=alea

Donohue, John, and Justin J. Wolfers (2005), Uses and Abuses of Empirical Evidence in the

Death Penalty Debate, Stanford Law Review, Vol. 58:79 (December 2005), pp. 791-845.

Donohue, John, and Justin J. Wolfers (2006), The Death Penalty: No Evidence for Deterrence,

The Economists' Voice, 3:5, art. 3.

Levitt, Steven D. (2004), Understanding Why Crime Fell in the 1990s: Four Factors that Explain

the Decline and Six that Do Not, Journal of Economic Perspectives, 18(1): 163-190.

Liptak, Adam, Does Death Penalty Save Lives? A New Debate, internet-article on “The New

York Times Online” (18-11-2007), URL:

https://www.nytimes.com/2007/11/18/us/18deter.html?pagewanted=all


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Recht und Ökonomie Law and Economics · Recht und Ökonomie (Law and Economics) ... SS 2015 (8) Criminal Law [Strafrecht] and ... − Changes in various crime categories & regions