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Crime Causation: Economic Theories - Economic Model Of Criminal Behavior: Basic Theory

legal activity decision risk

As mentioned in the overview, the economic model of crime is a standard model of decisionmaking where individuals choose between criminal activity and legal activity on the basis of the expected utility from those acts. It is assumed that participation in criminal activity is the result of an optimizing individual responding to incentives. Among the factors that influence an individual's decision to engage in criminal activities are (1) the expected gains from crime relative to earnings from legal work; (2) the chance (risk) of being caught and convicted; (3) the extent of punishment; and (4) the opportunities in legal activities. Specifying an equation to capture the incentives in the criminal decision is a natural first step in most analyses of the crime as work models. The most important of these gives the relative rewards of legal and illegal activity. For example, the economic model sees the criminal as committing a crime if the expected gain from criminal activity exceeds the gain from legal activity, generally work.

Just as in benefit-cost analysis, when comparing alternative strategies, interest centers on the returns from one decision vis-à-vis returns from another decision. For example, a preference for crime over work implies the earnings gap between legal and illegal activities must rise when the probability of being caught and the severity of punishment increases. Attitudes toward risk are central to economic models of criminal choice. For example, if the individual is said to dislike risk (i.e., to be risk averse) then he will respond more to changes in the chances of being apprehended than to changes in the extent of punishment, other things being equal. Becker developed a comparative-static model that considered primarily the deterrent effect of the criminal justice system. As we will see, how individuals respond to deterrent and incapacitation effects of sanctions has generated considerable theoretical and empirical interest from economists.

Any reasonable economic model has crime dependent on (1) legal and illegal opportunities; (2) the chance of being caught; and (3) the extent of sentencing; in the terminology of Freeman (1999a), they are intrinsically related. Thus, severe sentencing and improvements in legal work opportunities of criminals must be expected jointly to reduce crime. Of course, this assumes that crime and work are determined by the same factors and that higher legitimate earnings increase the probability of working. Early literature applied static one-period time allocation models to analyze criminal behavior. In other words, crime and work are assumed to be substitute activities; if an individual allocates more time to work, he will commit less crime because he will have less time to do so. The basic economic model of crime is static or comparative static in economic jargon because it does not see the potential criminal as considering more than a single time period when making his decision.

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