This PDF is a selection from an out-of-print volume from the National
Bureau of Economic Research
Volume Title: Essays in the Economics of Crime and Punishment
Volume Author/Editor: Gary S. Becker and William M. Landes, eds.
Volume Publisher: NBER
Volume ISBN: 0-87014-263-1
Volume URL: http://www.nber.org/books/beck74-1
Publication Date: 1974
Chapter Title: Crime and Punishment: An Economic Approach
Chapter Author: Gary S. Becker
Chapter URL: http://www.nber.org/chapters/c3625
Chapter pages in book: (p. 1 - 54)
Since the turn of the century, legislation in Western countries has ex-
panded rapidly to reverse the brief dominance of laissez faire during the
nineteenth century. The state no longer merely protects against viola-
tions of person and property through murder, rape, or burglary but also
restricts "discrimination" against certain minorities, collusive business
arrangements, "jaywalking," travel, the materials used in construction,
and thousands of other activities. The activities restricted not only are
numerous but also range widely, affecting persons in very different pur-
suits and of diverse social backgrounds, education levels, ages, races, etc.
Moreover, the likelihood that an offender will be discovered and con-
I
would like to thank the Lilly Endowment for financing a very productive summer in
1965 at the University of California at Los Angeles. While there I received very helpful
comments on an earlier draft from, among others, Armen Alchian, Roland McKean, Harold
Demsetz, Jack Hirshliefer, William Meckling, Gordon Tullock, and Oliver Williamson.
I have also benefited from comments received at seminars at the University of Chicago,
Hebrew University, RAND Corporation, and several times at the Labor Workshop of
Columbia; assistance and suggestions from Isaac Ehrlich and Robert Michael; and sugges-
tions from the editor of the Jour,wl of Political Economy, Robert A. Mundell.
Crime and Punishment:
An Economic Approach
University of Chicago and National Bureau of Economic Research
Gary S. Becker
1. INTRODUCTION
2
CRIME AND PUNISHMENT:
AN ECONOMIC APPROACH
victed and the nature and extent of punishments differ greatly from person
to person and activity to activity. Yet, in spite of such diversity, some
common properties are shared by practically all legislation, and these
properties form the subject matter of this essay.
in the first place, obedience to law is not taken for granted, and
public and private resources are generally spent in order both to prevent
offenses and to apprehend offenders. In the second place, conviction is not
generally considered sufficient punishment in itself; additional and some-
times severe punishments are meted out to those convicted. What deter-
mines the amount and type of resources and punishments used to enforce
a piece of legislation? In particular, why does enforcement differ so
greatly among different kinds of legislation?
The main purpose of this essay is to answer normative versions of
these questions, namely, how many resources and how much punish-
ment should be used to enforce different kinds of legislation? Put
equivalently, although more strangely, how many offenses should
be per-
mitted and how many offenders should
go
unpunished? The method used
formulates a measure of the social loss from offenses and finds those ex-
penditures of resources and punishments that minimize this loss. The
general criterion of social loss is shown to incorporate as special cases,
valid under special assumptions, the criteria of vengeance, deterrence,
compensation, and
rehabilitation
that
historically have figured
so
prominently in practice and criminological literature.
The optimal amount of enforcement is shown to depend on, among
other things, the cost of catching and convicting offenders, the nature of
punishments—for example, whether they are fines or prison terms—and
the responses of offenders to changes in enforcement. The discussion,
therefore, inevitably enters into issues in penology and theories of
criminal behavior. A second, although because of lack of space subsidiary,
aim of this essay is to see what insights into these questions are provided
by our "economic" approach. It is suggested, for example, that a useful
theory of criminal behavior can dispense with special theories of anomie,
psychological inadequacies, or inheritance of special traits and simply
extend the economist's usual analysis of choice.
II. BASIC ANALYSIS
A. THE COST OF CRIME
Although the word "crime" is used in the title to minimize terminologi-
cal innovations, the analysis is intended to be sufficiently general to cover
Crimes against persont
Crimes against propert
Illegal goods and
Some other crimes
Total
Public expenditures on
Corrections
Some private costs of
Overall total
SOURCE. —
Presidet
all violations, not jus
receive so much new:
white-collar crimes,
broadly, "crime" is
notwithstanding the
evidence recently pu
Enforcement and Adi
reproduced in Table
and local levels on po
amounted to over $'
guards, counsel, and
lion. Unquestionably
significantly understa
the course of enforcii
I. This neglect probat
merit any systematic sciei
analysis is seen most clearl
gambling is an "economic
true that this loss of proba
the excitement of gamblin
pleasures of gambling are
are likely to engender a r
for the higher and more
Appendix).
GARY S.
BECKER
3
reatly from person
ch diversity, some
slation, and these
n for granted, and
der both to prevent
conviction is not
and some-
What deter-
used to enforce
'orcement differ so
rmative versions of
how much punish-
of legislation? Put
should
be
per-
The method used
and finds those ex-
mize this loss. The
kte as special cases,
deterrence,
have figured
so
depend on, among
pders, the nature of
terms—and
fit. The discussion,
and theories of
space subsidiary,
are provided
that a useful
of anomie,
11
traits and simply
imize terminologi-
tly general to cover
TABLE 1
ECONOMIC COSTS OF CRIMES
Type
Costs
(Millions of Dollars)
Crimes against persons 815
Crimes against property 3,932
Illegal goods and services
8,075
Some other crimes 2,036
Total 14,858
Public expenditures on police, prosecution,
and courts
3,178
Corrections
1,034
Some private costs of combating crime
I ,9 10
Overall total
20,980
SouRcE.—President's Commission (1967d, p. 44).
all violations, not just felonies — like
murder, robbery, and assault, which
receive so much newspaper coverage—but also tax evasion, the so-called
white-collar crimes, and traffic and other violations. Looked at this
broadly, "crime" is an economically important activity or "industry,"
notwithstanding the almost total neglect by economists.1 Some relevant
evidence recently put together by the President's Commission on Law
Enforcement and Administration of Justice (the "Crime Commission") is
reproduced in Table 1. Public expenditures in 1965 at the federal, state,
and local levels on police, criminal courts and counsel, and "corrections"
amounted to over $4 billion, while private outlays on burglar alarms,
guards, counsel, and some other forms of protection were about $2 bi!-
lion. Unquestionably, public and especially private expenditures are
significantly understated, since expenditures by many public agencies in
the course of enforcing particular pieces of legislation, such as state fair-
I. This neglect probably resulted from an attitude that illegal activity is too immoral to
merit any systematic scientific attention. The influence of moral attitudes on a scientific
analysis is seen most clearly in a discussion by Alfred Marshall. After arguing that even fair
gambling is an "economic blunder" because of diminishing marginal utility, he says, "It is
true that this loss of probable happiness need not be greater than the pleasure derived from
the excitement of gambling, and we
are
then thrown back upon the induction [sic] that
pleasures of gambling are in Bentham's phrase 'impure'; since experience shows that they
are likely to engender a restless, feverish character, unsuited for steady work as well as
for the higher and more solid pleasures of life" (Marshall, 1961, Note X, Mathematical
Appendix).
4
CRIME AND PUNISHMENT: AN ECONOMIC APPROACH
employment laws,2 are not included, and a myriad of private precautions
against crime, ranging from suburban living to taxis, are also excluded.
Table I
also lists the Crime Commission's estimates of the direct
costs of various crimes. The gross income from expenditures on various
kinds of illegal consumption, including narcotics, prostitution, and mainly
gambling, amounted to over $8 billion. The value of crimes against prop-
erty, including fraud, vandalism, and theft, amounted to almost $4 bil-
lion,3 while about $3 billion worth resulted from the loss of earnings
due to homicide, assault, or other crimes. All the costs listed in the table
total about $21 billion, which is almost 4 per cent of reported national
income in 1965. If the sizable omissions were included, the percentage
might be considerably higher.
Crime has probably become more important during the last forty
years. The Crime Commission presents no evidence on trends in costs
but does present evidence suggesting that the number of major felonies
per capita has grown since the early thirties (President's Commission,
1967a, pp. 22—3 1). Moreover, with the large growth of tax and other
legislation, tax evasion and other kinds of white-collar crime have pre-
sumably grown much more rapidly than felonies. One piece of indirect
evidence on the growth of crime is the large increase in the amount of cur-
rency in circulation since 1929. For sixty years prior to that date, the
ratio of currency either to all money or to consumer expenditures had de-
clined very substantially. Since then, in spite of further urbanization and
income growth and the spread of credit cards and other kinds of credit,4
both ratios have increased sizably.3 This reversal can be explained by an
unusual increase in illegal activity, since currency has obvious advantages
2. Expenditures by the thirteen states with such legislation in 1959 totaled almost $2
million (see Landes, 1966).
3. Superficially, frauds, thefts, etc., do not involve true social costs but are simply
transfers, with the loss to victims being compensated by equal gains to criminals. While
these are transfers, their market value is, nevertheless, a first approximation to the direct
social cost. If the theft or fraud industry is "competitive," the sum of the value of the
criminals' time input—including the time of "fences" and prospective time in prison—plus
the value of capital input, compensation for risk, etc., would approximately equal the
market value of the loss to victims. Consequently, aside from the input of intermediate
products, losses can be taken as a measure of the value of the labor and capital input into
these crimes, which are true social costs.
4. For an analysis of the secular decline to 1929 that stresses urbanization and the
growth in incomes, see Cagan (1965, chap. iv).
5. In 1965, the ratio of currency outstanding to consumer expenditures was 0.08, com-
pared to only 0.05 in 1929. In 1965, currency outstanding per family was a whopping $738.
where H, is the harr
concept of harm an
are familiar to econ
ing external disecor
an important subse
with the level of cri
The social valu
6.
Cagan (1965, cha
1929 and 1960 to increa
7. The ith subscript
activity is being discusse
over checks in illeg:
tions) because no rc
B. THE MODEL
It is useful in deteri
develop a model to
listed in Table I. TI
between (1) the nun
cost of offenses, (2:
out, (3) the number
penditures on polic
costs of imprisonme
of offenses and the
The first four are d.
later section.
1. DAMAGES
Usually a belief tha
tion behind outlawi
of harm would tend
with
