Gary Becker’s fundamental insight was to recognise that

Gary
Becker, in his 1986 publication “Crime and Punishment: An Economic Approach 2”
is the ground-breaking foray of economics into the subject of crime, of which
the diverse roots presented somewhat of a struggle for a discipline like
economics, predicated on rational behaviour, to explain. Becker’s paper looks
at criminals as rational individuals, capable of deciding between engaging in criminal
activity and standard economic activity. Criminals, like ordinary citizens,
seek to maximise their own well-being, although through means not considered
legal.

 

The
definitive feature of the economic approach to the study of crime and criminal
participation is the methodology. Becker’s fundamental insight was to recognise
that economic theory can provide vital insights into the analysis of criminal
behaviour. The choice between criminal activity and non criminal activity is
based on the expected utility from each, leading to the idea that a rational
offender faces a gamble between choosing whether or not to commit a crime. Becker’s
model can be explained using these assigned parameters; W – Wages made from
legitimate activity, Wc – Earnings from criminal activity, p – is the
probability of getting caught, S – is the cost to the individual in punishment,
for example jail time or fines. These variables are summarised in Figure 1. below.

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The potential criminal will choose crime over legitimate work if expected
utility of crime is greater than the expected utility of legitimate work.

 

Variable

Description

W

Wages
from legitimate activity

Wc

Earnings
from criminal activity

p

Probability
of getting caught

S

Cost
to the individual in punishment

 

Figure
1.

 

The
expected utility of crime can be summarised by (1-p) U(Wc) – p U(S).

The first half, (1-p) U(Wc), is the utility from criminal earnings,
multiplied by the probability of getting away with crime. The second half, p
U(S), is (dis)utility from the penalty received, multiplied by the probability
of getting caught. U(W) is the expected utility from legitimate work.

 

Individuals
will choose crime if the expected utility of crime is greater than the expected
utility of legitimate work, summarised as (1-p) U(Wc) – p U(S) >
U(W). According to Becker’s model, crime is positively related to criminal
earnings (Wc), negatively related to legitimate earnings (W),
negatively related to the probability of getting caught (p), and negatively
related to punishment (S). This translates into the fact that crime becomes
more attractive when possible earnings are increased, and less attractive when
the punishment is harsher, and the utility of work is high 4.

 

However,
Becker’s model may be subject to potential limitations. The model in itself is simplistic
and therefore must be extrapolated to real world situations with care. Draca and
Machin (2015)3  found
limitations, such as the model has homogeneous criminals, where crime
specialisation is not considered and homogeneous loot (which yields a return).

 

A further relevant concern is the
notion that the model does not differ for the type of crime committed. Nevertheless,
Draca and Machin agree that it seems intuitive that property crime is likely to
be better understood, taking into account the way in which economic incentives
can drive crime in this model. However, it is suspected that in general the
model is less useful in the context in that, in most settings, relative labour
market opportunities seem less likely to be a significant determinant of
violent crime. The model is more applicable to theft and tends to only explain
crime where the outcome is beneficial and yields a return to the criminal, not
in instances for example, where violent crime is committed, in which deeper rooted
psychological causes should be examined.

 

Moreover,
modelling individuals’ responses to economic incentives can improve
understanding of the way in which the certainty and severity of punishment may
affect individuals’ decisions to engage in illicit activities. In this model
economic incentives can affect crime in a number of various ways. Firstly, this
can be through alternatives to crime 3. Generally, the alternative
is a job on the labour market which gives individuals a payoff/wage from the
legitimate activity (W), as opposed to the earnings from a criminal activity (Wc).

Consequently, if the wage offered in the formal labour market were to improve
and all else stays constant, crime participation is predicted to fall,
reiterating from above that crime is negatively related to legitimate earnings.

 

Secondly,
another way in which incentives can matter is through the returns to crime. If
earnings from a criminal activity (Wc) were to increase, or be perceived
to have increased, crime participation is predicted to also increase. Therefore,
if the value of loot from crime rises, or if criminal productivity 3
increased thus enlarging the crime return, the returns from crime increase
which is positively correlated to criminal participation.

 

The specific relationship of how economic incentives
affect criminal participation can be examined using empirical evidence. The
2015 publication by Draca, Koutmeridis and Machin 5 examining
“How
individuals respond to changes in the potential value of criminal
opportunities?” focuses on how a change
in the prices of loot from crime plays a role in explaining recent crime
trends.

Figure
2. Examples of Changes in Crime Shares and Prices

 

As Figure 2. indicates, a decrease in the price of
loot such as audio/radio/Hi-Fi/CD players leads to a strong negative
correlation with the share of crime of those types of goods stolen on a monthly
basis. Conversely, the rising prices of watches leads to an increase in this
good being looted. The outcome of this analysis reveals the role economic
incentives have on criminal participation.

 

Figure
3. 12-Month Changes in Log(Metal Crime) and Log(Scrap Metal Prices), 2002-2012

 

A
similar analysis for metal commodities is show in Figure 3., with crime plotted
against the associated change in metal and scrap metal prices. In both of the
diagrams, the fluctuations in prices and crime are highly correlated. The
findings of these diagrams correspond well to Becker’s model, in which the
decisions of individuals contemplating engaging in criminal activity are moulded
by economic incentives. As the value of the loot changes (Wc),
becoming more or less attractive to potential criminals as the price changes,
it alters the relative return to crime available for stealing various goods,
and therefore increases or decreases the expected utitlity of crime.

 

To
conclude, Becker’s model of criminal participation is imperative in the understanding
of the choice potential criminals undertake and what leads to their decision to
engage in criminal activities rather than standard economic activities. 

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