Crime Causation: Economic Theories

The roots of crime are diverse and a discipline like economics, predicated on rational behavior, may be at something of a disadvantage in explaining a phenomenon largely viewed as irrational. The foray by economists into this area is relatively recent, dating back to Gary Becker's pathbreaking contribution in 1968. As part of a larger model designed to explore optimal criminal justice policy, he developed the "supply of offense" function, which indicates the factors affecting the number of crimes a rational individual commits. Since then there has been much progress in both expanding on this important relationship and utilizing it for more theoretically grounded analyses of criminal behavior.

A recent survey suggests that three general issues are of central concern in the economics of crime literature: the effects of incentives on criminal behavior, how decisions interact in a market-setting, and the use of cost-benefit analysis to assess alternative policies to reduce crime (see Freeman, 1999a). In this entry we will focus on the role of incentives on criminal behavior.

Crime is a major activity for young males. Crime is like basketball; it's a young man's game. As one researcher has observed: "Actual rates of illegal behavior soar so high during adolescence that participation in delinquency appears to be a normal part of teen life" (Moffit, p. 675). By the age of eighteen possibly 90 percent of young males have participated in delinquent acts and approximately half have been arrested for non-traffic offenses by the time they are thirty. Only 50 to 60 percent of young females have been involved in delinquent acts by the time they are eighteen and less than 10 percent have been arrested by the age of thirty (Witte, 1997).

Explaining the secular trend in criminal participation rates in most industrialized economies is a difficult task. Many social scientists argue that crime is closely related to work, education, and poverty and that truancy, youth unemployment, and crime are by-products or even measures of social exclusion. "Blue-collar" criminals often have limited education and possess limited labor market skills. These characteristics partly explain the poor employment records and low legitimate earnings of most criminals. These sort of issues originally led economists to examine the relationship between wages and unemployment rates on crime. More recently economists have also considered the benefits and costs of educational programs to reduce crime.

A related question concerns the impact of sanctions. For example, does increased imprisonment lower the crime rate? How does the deterrent effect of formal sanctions arise? Although criminologists have been tackling such issues for many years, it is only recently that economists have entered the arena of controversy. This is not surprising given the high levels of crime and the associated allocation of public and private resources toward crime prevention. The expenditure on the criminal justice system (police, prisons, prosecution/defense, and courts) is a significant proportion of government budgets. In addition, firms and households are spending increasingly more on private security.

The incentive-based economic model of crime is a model of decision-making in risky situations. Economists analyze the way in which individual attitudes toward risk affect the extent of illegal behavior. In most of the early literature, the economic models of crime are single-period individual choice models. These models generally see the individual as deciding to allocate time with criminal activity as one possible use of time. A key feature is the notion of utility; judgments are made of the likely gain to be realized (the "expected utility") from a particular choice of action. Individuals are assumed to be rational decision-makers who engage in either legal or illegal activities according to the expected utility from each activity. An individual's participation in illegal activity is, therefore, explained by the opportunity cost of illegal activity (for example, earnings from legitimate work), factors that influence the returns to illegal activity (for example, detection and the severity of punishment), and by tastes and preferences for illegal activity.

Economists see criminal activity as being similar to paid employment in that it requires time and produces an income. Clearly, the dichotomy between either criminal activity or legal activity is an oversimplification. For example, individuals could engage in criminal activities while employed since they have greater opportunities to commit crime; similarly, some criminals may jointly supplement work income with crime income in order to satisfy their needs. A secondary problem with the economist's choice model, which was highlighted in our opening comments, is that young people are more likely to participate in crime long before they participate in the labor market. This observation raises questions about the appropriateness of the economic model of crime in explaining juvenile crime.

Economic models of criminal behavior have focused on sanction effects (e.g., deterrence issue) and the relationship between work and crime. In the main, these models have not directly addressed the role of education in offending. It could be argued that unemployment is the conduit through which other factors influence the crime rate. For example, poor educational attainment may be highly correlated with the incidence of crime. However, this may also be a key determinant of unemployment. Although educational variables have been included as covariates with crime rates, they have not received a great deal of attention in correlational studies.

The remainder of the entry is organized as follows. In the next section, we outline the economic model of crime; the section following considers two extensions to the basic theory; then a section provides a brief overview of the empirical evidence; the final section examines recent work on juvenile crime and education.