Showing papers by "Gary S. Becker published in 2006"

The Market for Illegal Goods: The Case of Drugs

Abstract: This paper considers the costs of reducing consumption of a good by making its production illegal and punishing apprehended illegal producers. We use illegal drugs as a prominent example. We show that the more inelastic either demand for or supply of a good is, the greater the increase in social cost from further reducing its production by greater enforcement efforts. So optimal public expenditures on apprehension and conviction of illegal suppliers depend not only on the difference between the social and private values from consumption but also on these elasticities. When demand and supply are not too elastic, it does not pay to enforce any prohibition unless the social value is negative. We also show that a monetary tax could cause a greater reduction in output and increase in price than optimal enforcement against the same good would if it were illegal, even though some producers may go underground to avoid a monetary tax. When enforcement is costly, excise taxes and quantity restrictions are not equiv...

The Market for Illegal Goods: The Case of Drugs

Abstract: This paper considers the costs of reducing consumption of goods by making their production illegal and punishing illegal producers. We use illegal drugs as a prominent example. We show that the more inelastic either demand for or supply of goods is, the greater the increase in social cost from further reducing its production by greater enforcement efforts. So, optimal public expenditures on the apprehension and conviction of illegal suppliers depend not only on the difference between the social and private values of consumption, but also on this elasticity. When demand and supply are no so elastic, it does not pay to enforce any prohibition unless the social value is negative. We also show that a monetary tax could cause a greater reduction in output and increase in price than optimal enforcement against the same goods if it were illegal, even though some producers may go underground to avoid a monetary tax. When enforcement is costly, excise taxes and quantity restrictions are not equivalent.

Peer Comparisons and Consumer Debt

Abstract: A number of commentators have expressed concern about the high level of debt incurred by the average American While high debt is an appropriate response to low interest rates and an expected growth in income, it has also been suggested that it reflects consumption patterns that are suboptimal1 One possibility is that a competition for social status, via the purchase of conspicuous goods, has led to excessive consumption2 Indeed, the purchase of many visible goods— such as cars, boats, home appliances, jewelry, and electronic equipment—appears to be motivated, at least in part, by a desire to advance in the social ranking In this race, where one consumer’s gain is another’s loss, there can be no winners on average, and the resources deployed are thus wasted from a social perspective3 Wasteful consumption, however, is not necessarily the same as excessive borrowing Consumers, for instance, might be as eager to outspend their neighbors in the future as they are in the present—

On the Economics of Capital Punishment

Abstract: Economists’ Voice www.bepress.com/ev March, 2006 Gary Becker is a Regular Columnist for the Economists’ Voice. He won the Nobel Prize in 1992 and is a Senior Fellow at the Hoover Institution and a University Professor of Economics and Sociology at the University of Chicago. He is internationally recognized for pioneering work on human capital, discrimination, the economic analysis of crime, and the economics of the family. A.B., Princeton, 1951; A.M., 1952, Ph.D., 1955, University of Chicago.

Reversal of misfortune: paradox in optimization across contingencies

Abstract: I: INTRODUCTION Often an economic agent can be dissatisfied with an endowed distribution of outcomes, events, or utilities and desire to improve this distribution by transferring income or resources across individuals or states of the world. Some kinds of utility generating resources may be easy to transfer, while others are difficult-maybe impossible-to reallocate. For example, perfect lump-sum transfers of some resources such as earned income may be possible but other resources, such as the time endowments of individuals, may be completely non-transferable. This multi-state optimization theme recurs in a wide variety of economic contexts, ranging across taxation and income distribution, international trade and market disruption, labor contracts and unemployment insurance, and many others. Jack Hirshleifer's influence on our understanding of such inter-contingency allocations spans many decades of his professional life. Well before the Quarterly Journal of Economics articles that established his authority on the subject (Hirshleifer, 1965, 1966) Jack had cast issues of preparation for and survival from nuclear war in those terms (Hirshleifer, 1953, 1956). In fact, a preoccupation with how to manage uncertain adversity continued to inform his entire life's work, including his foundational contributions of his later years in creating the economics of conflict as a field of study (Hirshleifer, 1987, 2001). Yet because economic analyses of such topics, including those of Hirshleifer, have frequently been so context driven, the generality of this theme across cases and its structure seem to have gone unnoticed, and the generality of a

Reversal of Misfortune When Providing for Adversity

Abstract: Often an economic agent dissatisfied with an endowed distribution of utilities desires to optimize this distribution by transferring income or resources across individuals or states of the world. This multi-state optimization theme recurs in a wide variety of economic contexts, ranging across taxation and income distribution, international trade andmarket disruption, labor contracts and unemployment insurance, Rawlsian design of social contracts, provision for retirement, and many others.Because analyses of such topics are frequently so context driven, the generality of this theme seems to have gone unnoticed and, of a particular paradoxical result, unappreciated. Lump-sum re-distribution or perfect and fair insurance in a first best environment will reverse the preference rankings of the endowed distribution of utilities – after redistribution the originally ‘bad’ outcomes become preferred to originally better ones.