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Economic Crime: Theory - Neoclassical Or Economic Approach

people risk utility rational

In the late 1960s the economist Gary Becker questioned positivist approaches to crime, arguing 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" (repr. 1974, p. 2). Characterizing his approach as an effort of "resurrection, modernization, and . . . improvement" (p. 45) of the rational approach of Beccaria and Bentham, Becker argued that criminals were not biologically, psychologically, or sociologically different from noncriminals; and that the decision to offend did not originate in a unique set of motives but was influenced by the same factors that motivate all purposive behaviors. Becker and others developed these ideas in what is now called the neoclassical or economic approach to crime. According to this perspective, people choose criminal over noncriminal alternatives in the same way that they choose particular strategies when they act as consumers in the marketplace. This theoretical explanation (Becker, 1976) is based on the following assumptions:

  1. People's actions can be understood as rational; that is, people are naturally motivated to pursue their own interests and their behaviors can be examined as attempts to meet these desires. This does not preclude people from acting irrationally, as for example when they choose something on the basis of its availability rather than its ability to meet a desire, nor does it mean that people are necessarily conscious of their attempts to maximize their self-interests. Instead, the economic approach simply assumes that most actions can be understood as rational.
  2. Material gain is a common interest, but it is not the only, nor necessarily the primary influence in people's decisions. People have a much richer set of interests, and the actions they undertake reflect their attempts to maximize these. Unfortunately, it is all but impossible for people to meet or accommodate completely their interests: people's desires are unlimited, whereas wealth, income, opportunities, and other resources are finite.
  3. Because they are rational and must make choices, people can always express preferences between outcomes and the things they desire (commodities). Their preference rankings reflect their expectations of how much satisfaction (utility) an outcome or commodity will provide (utility function) and how much it will cost (opportunity cost). When given a choice, rational economic actors choose actions that will provide an outcome or commodity that they believe will maximize utility (satisfaction, not necessarily pleasure) and minimize costs. People's preferences are stable over time and at any point can be hierarchically ordered from most to least valued.
  4. Rationally economic actors prefer more of a desired outcome or commodity to less, and prefer a lower cost to a higher one; however, the more people have of an outcome or commodity, the less likely it is that further increases will contribute to their satisfaction (diminishing marginal utility). Thus people who have an abundance of something are willing to give up a lot for relatively little in return (money may be the one significant exception because, in essence, it can become any commodity).
  5. People base their rational decisions on information they collect. They endeavor to know as much as is optimally possible about each potential outcome's and commodity's utility, availability, and costs; however, they recognize that gathering information is itself a cost (e.g., see the theory of optimal or rational accumulation of costly information). Thus, although rationally economic actors endeavor to use all available information in making decisions, many decisions will be made on incomplete information and may not serve to maximize utility.
  6. People have imperfect memories and often miscalculate; these attributes can further compromise their ability to maximize utility.
  7. The future is not completely predictable. All decisions are based on expected utilities and have an element of risk or uncertainty. Thus, people's attitudes toward uncertainty and risk affect their assessment of the satisfaction associated with various outcomes or commodities. As a result, people may agree about a commodity's or outcome's utility but vary widely in their comfort with the gambles involved in acquiring one of these; thus they will assign different utilities to the commodity or outcome. A person who generally refuses to accept what is calculated to be a "fair gamble" is said to be risk averse. Those who generally have a preference for taking fair gambles are referred to as risk seekers. Finally, between the extremes of risk seekers and those who are risk averse, there are those that are risk neutral; those who are generally indifferent to accepting or refusing a fair gamble.

Although these assumptions are usually used to describe legal business decisions and actions, Becker (1974) and other neoclassical theorists argue that they can be extended to include criminal behavioral choices. Thus:

  1. People choose to offend using the same cost-benefit analysis they use when choosing legal behaviors: a decision to offend reflects a normal, rational, calculation. Thus, this explanation of crime does not need to introduce personality characteristics, background experiences, or situational contingencies.
  2. The decision to offend involves calculations based on estimates of a legal opportunity's availability, costs, and ability to provide a desired end (i.e., expected utility), versus an illegal opportunity's availability, costs, and ability to provide the same or comparable end. Both legal and illegal behaviors can provide an array of benefits that include material gain, approval or prestige, "psychic" or emotional returns (e.g., thrill, honor, revenge, a sense of equity), and other nonpecuniary returns. The potential costs of these behaviors include time, transaction, and "psychic" costs (e.g., anxiety). Crime, however, introduces a unique set of reputational (e.g., loss of respect), psychological (e.g., guilt, shame, anxiety) and punishment costs (e.g., fines and incarceration).
  3. The decision to offend is also influenced by a person's tolerance or enjoyment of taking risks. Thus, all things equal, those who commit crime at relatively high rates are comparatively more risk seeking or risk tolerant, those who offend at moderate rates are relatively more risk neutral, and those who seldom, if ever, violate criminal laws are relatively more risk averse.
  4. The most effective way to reduce crime is to increase people's perceptions that costs of offending will exceed its rewards, and that the benefits of legal behavior surpass its costs.
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