HC-Lecture 7 Crime in Economic Literature

8/13/2019 HC-Lecture 7 Crime in Economic Literature

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Economics of Human Capital

Lecture 7: Crime

Levitt Research

Ian Walker Lancaster University Management School

[email protected]



Overview of lecture

• Levitt, “The effect of prison population sizeon crime rates” QJE 1996

• Levitt, “Juvenile crime and punishment” JPE1998

• Levittt, “Using electoral cycles in police hiringto estimate the effect of police” AER 1997

• Donohue and Levitt, “Guns, violence and theefficiency of illegal market”, AER (P&P) 1998

• Levitt, “Understanding Why Crime Fell in the1990s: Four Factors That Explain the Decline

and Six That Do Not”, JEconPersp 2004



Crime and punishment

3

• Huge early literature (mostly) suggests thatcrime responds to punishment

– Although estimates were often modest

• Simultaneity - major methodological issue• More crime induced by low incarceration rates

– but states with high crime rates may respond by

locking up more criminals. – OLS estimates of punishment on crime will

generally underestimate the effect

• Enter Steve Levitt



Levitt QJE 1996

• Levitt (QJE 1996) estimates the relationshipbetween crime and imprisonment rates

4



Levitt QJE 1996

• Instruments P usingstate litigation suitsconcerned withovercrowding

– “cruel and unusual”

• States responded invarious ways

– prison population caps

– End “double celling”

– early release programs5



Levitt QJE 1996

• Dramatic results

• 10% reduction in imprisonment rates wouldinduce about 4% more crime.

– Or - 1 less prisoner induces 15 (!) more crimes

• Crude CBA – social benefit of eliminating 15 crimes is about

$45k (see Viscusi JEL 1993 for review of valueof life lit.)

– the annual costs of rison are $30k.6

Type of crime OLS-diffs IV-diffs

Violent -0.099 (0.33) -0.424 (0.201)

Property -0.071 (0.019) -0.321 (0.138)



Levitt AER 1997

• Same issuessurrounds work oncrime and policing

• Endogeneity – more police may

reduce crime.

– But more policereport more crime

– OLS underestimatescausal effect

7



Levitt AER 1997

• Estimates therelationshipbetween crime

and police• Instruments the

latter using local

elections – increases in

police forces arelarger during

election years. 8



Levitt AER 1997

• Effects of (log) police on (log) crime were:

• Crude CBA – +1 officer => Δviolent/property crime -7.0/-12.4

– Costs $44k but social benefits of 200k

• Mostly due to violent crime reduction• McCrary AER 2002

– Adjust s.e’s for weighting leads to insignificance

– Response admits problem and moves goalposts9

Type of crime OLS-levels OLS-diffs IV-diffs

Violent 0.28 (0.05) -0.27 (0.06) -1.39 (0.55)

Property 0.21 (0.05) -0.23 (0.09) -0.38 (0.83)



Deterrence vs incapacitation

• Since Becker (JPE 1968) research hasfocussed on the deterrence effect ofpunishments, f , and the probability ofapprehension, p.

• The problem with this pre-occupation withdeterrence is that it does not reflect thebroader range of considerations that aresuggested by the theory

• Levitt (and others) have pointed out thatthere may be an incapacitation effect

– Supply elasticity of criminals in not infinite 10




• Criminals may be poorly informed about p and f and may be over-optimistic about theirown criminal expertise.

– Crime yields uncertain benefits - and hence mayattract the least risk averse.

– The benefits are immediate but, in the case ofprison, the potential costs are administered witha large lag.

– There may be even be a lag for fines if the CJSis slow. We would expect criminals to have

higher discount rates than non-criminals. 11




• Serving time may be a“rite of passage

”

– “Bragging rights”

• Moreover, testing for deterrence is difficult

because the expected punishment ( p . f )has both:

– deterrence effect, because Of <0 and O p>0 and

– incapacitation effect, which arises because

• fixed effect in the probability of committing crime (highdiscount rate, low risk aversion, optimism, criminalability, etc.)

• learning-by-doing, and a scarring effect of prison onfuture legal options

12




• Becker ’

s theory is about deterrence – locking felons up has incapacitation effect too

• Virtually all of empirical work that supports

the economic model of crime is equallyconsistent with incapacitation.

– Cameron (1988) survey in particular

• f and p may operate via both routes

• In some cases this distinction is critical

– such as determining the impact of policies like"three strikes and you’’re out" laws.

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• If deterrence is at work then "three strikes"laws are likely to be effective;

• But if only incapacitation is at work then"three strikes" laws will lead to a geriatric,cost-ineffective prison population.

• But it is typically difficult to differentiateempirically between deterrence andincapacitation

– both are a function of expected punishment

• Kessler and Levitt; Journal of Law and

Economics, 1999 14



Kessler and Levitt; JLawEcon 1999

• Looks at the introduction of “sentenceenhancements” to provide a direct means ofmeasuring deterrence.

– increased terms that are added onto prisonsentences that would have been served anyway

• No additional incapacitation effect from the

sentence enhancement in the short-run – because the criminal would have beensentenced to prison anyway

• Therefore, any immediate decrease in crimemust be due to deterrence. 15



Kessler and Levitt; JLawEcon 1999

• California's“Proposition 8

” imposed higher

sentence for a selected group of crimes

– “serious” offenders got an extra 5 if they had“previous”

• 1 year after P8 covered crimes fell by 10%+relative to similar but uncovered crimes

– Suggesting a large deterrent effect.

– 3 years after P8 covered crimes had fallen by20-40% compared to other crimes.

• Large deterrent effect - suggests that three-

strikes laws may be effective 16



Levitt, Econom ic Inqui ry 1998Three strikes

• If at least some criminals are repeatoffenders

– and providing criminals are not exclusivelyspecialised in one type of crime

• then it is possible to estimate the relativeimportance of the two effects by looking atthe effect of punishment for one type of crimeon the supply of other types of crime.

• If criminals are rational they will substituteaway from crimes that get more heavily

punished towards “cheaper ” crimes. 17



• Estimates

– where j is a vector of other crimes.• He found that

– deterrence more important than incapacitation

– deterrence effects typically significantly negative – neither is significant for murder

– incapacitation is significantly negative for rapeand robbery and accounts for half the total effect

– deterrence large for burglary (1 arrest eliminates2 burglaries) but incapacitation is small (1 arrestonly eliminates a further 0.1 burglaries).

18

it it i i j

it jt

a ac X

c c



Three strikes

• “three-strikes-and-you’re-out

” depends ondeterrence rather than incapacitation

– Otherwise it would fill prisons with aging men

– and since crime falls steeply with age, it wouldhave little incapacitation effect

• if deterrence is strong then “three-strikes-and-you’re-out” would imply stiff penalties

(often for minor marginal crimes), – the crime rate would fall

– and prison populations could (conceivably) fall19



Three strikes• Three strikes laws introduced at different

times in different states for different crimes• California P36 (2000) scaled back 3S

• Mandatory drug treatment if 3rd strike

– P36 2012 gave further leniency• Reluctance to use ability to impose 3S

• Few other countries have 3-strikes

– Mandatory sentences more common than 3S

• Helland Tabrrok JHR 2007

– DD states with and without and convictions for

covered crimes vs uncovered 20



Juvenile crime• From 60’s to 90’s US (and UK) juvenile

crime grew much faster than older crime.

• Levitt (JPE 1998) suggests this might be dueto differential changes in punishment:

– the punishments for juveniles had become morelenient over time

– and that for older criminals had become less

lenient over time – changes in relative punishment can explain 60%

of the differential growth rates in juvenile andadult crime over the period I examine.

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Levitt JEP 2004

• Re-iterates abortionfinding

– Criticised on manygrounds

• Kahane, et al,Economica 2008

• Joyce’s papers,REStats 2009, andHandbook of

Economics of

Crime 22



See also

• Ayres and Levitt, "Measuring the PositiveExternalities from Unobservable VictimPrecaution: An Empirical Analysis of

Lojack," Quarterly Journal ofEconomics, 1998

• Levitt and Venkatesh, "An Economic

Analysis Of A Drug-Selling Gang'sFinances," Quarterly Journal of

Economics, 2000.

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Next

• Effect of gun control and other private healthand safety decisions

24

HC-Lecture 7 Crime in Economic Literature

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