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• Foreword
• Preface
• Acknowlegments
• Cost and Choice
• 1.: Cost In Economic Theory
• Classical Economics
• Marginal-utility Economics
• The Marshallian Synthesis
• Frank Knight and American Neoclassical Paradigms
• 2.: The Origins and Development of a London Tradition
• Wicksteed and the Calculus of Choice
• H. J. Davenport
• Knight On Cost As Valuation
• Robbins, 1934
• Mises, Robbins, and Hayek On Calculation In a Socialist Economy
• Hayek, Mises, and Subjectivist Economics
• The Practical Relevance of Opportunity Cost: Coase, 1938
• G. F. Thirlby and “the Ruler”
• Mises’ Human Action
• The Death of a Tradition?
• Appendix to Chapter 2: Shackle On Decision
• 3.: Cost and Choice
• The Predictive Science of Economics
• Cost In the Predictive Theory
• Cost In a Theory of Choice
• Choice-influencing and Choice-influenced Cost
• Opportunity Cost and Real Cost
• The Subjectivity of Sunk Costs
• Cost and Equilibrium
• 4.: The Cost of Public Goods
• The Theory of Tax Incidence
• Costs and Fiscal Decision-making: the Democratic Model
• Costs and Decision-making: the Authoritarian Model
• Costs and Decision-making: Mixed Models
• The Choice Among Projects
• The Costs of Debt-financed Public Goods
• Ricardo’s Equivalence Theorem
• Tax Capitalization
• 5.: Private and Social Cost
• Summary Analysis
• A Closer Look
• Internal Costs, Equilibrium, and Quasi-rents
• An Illustrative Example
• Pigovian Economics and Christian Ethics
• Narrow Self-interest and Alternative-opportunity Quasi-rents
• Conclusion
• 6.: Cost Without Markets
• Prices, Costs, and Market Equilibrium
• Resource-service Prices As Final-product Costs
• Market Equilibrium, Costs, and Quasi-rents
• The Cost of Military Manpower: an Example
• The Cost of Crime: Another Example
• Artificial Choice-making
• Socialist Calculation and Socialist Choice
• Costs In Bureaucratic Choice

The Cost of Crime: Another Example

Economists have only recently started to pay attention to crime and punishment, but this now bids fair to becoming a relatively important research area. Several studies have involved the extension of economic analysis to the decisions of criminals on the one hand and to those of law enforcement agencies on the other, both of which kinds of decisions are clearly outside a market equilibrium context. The implication of my discussion is that any costs which the economist may objectify need bear little relation to those costs which serve as actual obstacles to decisions. Recognition of this fact need not destroy the usefulness of the economic analysis. The costs that the economist quantifies may be directionally related to those costs that inhibit choice. In this case, changes in the level of objectified costs (for example, changes in the probabilities of conviction and in the severity of punishment) will produce effects on the number of offenses committed. Serious problems arise here only when the attempt is made to lay down more explicit norms for policy, as, for example, when the conditions for optimality or efficiency are discussed.

One part of Gary Becker’s recent, and excellent, paper may be used as an example.2 In a section in which he discusses optimality conditions, Becker argues that if the costs of apprehending and convicting offenders are zero, the marginal value of the fines imposed on criminals should be equated to the marginal value of the harm that offenses cause. This is an admittedly limited model, but, even here, Becker’s conclusion is valid only under a special assumption about the prospective criminal’s choice behavior. In contemplating an offense, the criminal must be assumed to leave out of account any and all considerations of the harm imposed on others. It must be assumed that this does not enter as an obstacle in his decision, that this is not a part of his choice-influencing cost. If, for any reason, this element enters as a genuine cost, Becker’s suggested norm would overshoot the mark. Some crimes that would be in the “social interest” would be prevented by the imposition of Becker’s conditions. (The analysis here is almost identical to that made in an earlier chapter with reference to the Pigovian analysis.) Perhaps more significantly, the optimal number of offenses would be secured when marginal fines remain considerably lower than the marginal damage to others. In other words, for the criminal who incorporates into his costs some consideration of the harm his crime will impose on others, the point at which “crime may not pay” him is reached well before the point at which the observing economist marks the disappearance of net profit.

Clarification of the cost concept may have certain interesting and relatively important policy implications for criminal activity, or even for noncriminal activity that is for any reason held to be suspect or immoral. To the extent that the consideration of prospective harm to others, or, in fact, any moral restraint upon the decision, varies with the location and incidence of the offense contemplated, the opportunity cost of the offense varies. Hence, we should expect that crimes committed within the local community of the perpetrator against persons with whom he has close contacts would normally involve a higher cost barrier due to the moral restraint upon the actor in such a situation. From this it follows that fines or penalties required to achieve any given level of deterrence can be somewhat lower for these cases than for others. That is, crimes committed locally should bear lower fines than those imposed for identical crimes committed outside the community and on “foreigners.” Other similar implications can be derived. Generally, punishments and fines for comparable crimes can be lower in small cities than in large. And, importantly, punishments for crimes against persons or property of the same racial or religious group can be lower than punishments for identical crimes against persons who are members of ethnic or religious groups differing from those to which the criminal belongs.

[2. ]Gary Becker, “Crime and Punishment: An Economic Approach,” Journal of Political Economy, 76 (March-April 1968), 169-217.