ECONOMICS OF CRIMECrime and punishment_Group members:Khanh Ha BuiTarun PatelAru MuortatGiorgos Koursaros

OUTLINE Trends in the crime rates in the USA for the past 60 years Economic model of crime Difference-in-differences method Case study: Three strikes law in California - 2011 Limitations of the case study and economic model

TRENDS IN CRIME RATES IN THE USA

• Crime in the USA today about half of what it was at its peak in 1991

• This has coincided with a sharp increase in incarceration rates as illustrated below

• Since 1990, incarceration nearly doubled, adding 1.1 million people behind bars

ECONOMIC MODEL OF CRIME Earliest form of the model published by Becker in 1968 Argues that the rational offender faces a gamble: Individuals make a rational choice between legitimate work or committing crime

This choice is formulated by the expected utility of each. The model is made up of the following variables:

W – wages from legitimate activityWc – earning from criminal activityp – the probability of getting caughts – the cost to the individual in punishment

Expected utility of crime:

U= (1-p) U(Wc)- pU(S)

U= the utility associated with the choice to abstain from crime i.e. legal earnings

(1-p)U(Wc) is the utility associated with choosing to commit a crime that does not result in an apprehension

pU(S) is the disutility associated with choosing to commit a crime that results in apprehension and punishment

U(W) is the expected utility from legitimate work

An individual will choose to commit a crime if the following holds true:

(1-p)U(Wc)- pU(S) > U(W)i.e. if the expected utility of crime is greater than the expected utility of work. Crime is: Positively related to criminal earnings, U(Wc) Negatively related to legitimate earnings, U(W) Negatively related to probability of getting caught, p Negatively related to punishment, S

EXPERIMENTS IN SOCIAL SCIENCE Laboratory experiments:• These enforce scientific control by testing a hypothesis in the artificial and

highly controlled setting of a laboratory• Random assignment of participants into control and treatment groups is

organised by the researchers

Natural experiments (Field Experiments):• Natural experiments, examine a naturally occurring intervention in the

real world by making use of available real world data.• Random assignment of units into treatment and control is done naturally

by some real world event, policy or regulation.

DIFFERENCE-IN-DIFFERENCES METHOD

2 groups and 2 time periods Treatment group is exposed to the treatment in period 2 but not period 1

Control group isn’t exposed to the treatment at any period

We measure the difference in the differences from time period 1 to 2 across the two groups to account for extraneous variables.

Source: http://en.wikipedia.org/wiki/Difference_in_differences

ECONOMIC MODEL OF CRIME APPLIEDThree Strikes and You’re Out: A Triple Differences Approach to Estimating the Deterrent Effect of California’s Three Strikes Law. (Marcet,Daniel 2011)

This case study looks at how criminals in California were affected by the three strike law, it uses a natural setting and also uses a difference in difference analysis technique

DOES PUNISHMENT REALLY NEGATIVELY AFFECT CRIME?The model states that individuals choose between criminal activity and standard economic activity we are specifically looking at how punishment (S) negatively related to crime.

THE CASE STUDY The three strike rule implied that criminals were deterred in criminal

activity as harsher punishments were doled out. The reason for these laws was two-fold

To incarcerate habitual criminalsTo increase penalties

In this case study we see a natural experiment which utilises difference in difference analysis

The treatment group was California as they implemented the three strike law first. The control groups were 11 un-named states.

The case study was testing whether criminals relapse back into crime and also the effect it has as a deterrent

METHODOLOGY OF THE CASE STUDY In order to look for a deterrent effect for harsher criminal sanctions, it is ideal to have a law that imposes harsh sentences on one group of criminals while sentencing a group of similar criminals much less harshly.

The treatment groupIndividuals with two strikes and have been convicted on both occasions

The control group Individuals with two strike-able offense but only one conviction for the strike-able offense a convicted for a non strike-able offense.

RESULTS The three strikes law raises the cost of engaging in a life of crime for all California criminals. Therefore, if criminals are future oriented, then it is possible that the law would deter them regardless of the number of strikes that they have.

There was some evidence that supports the idea that the law may be acting to deter crime for individuals with no strikes and at least one prior felony arrest. Relapse back into crime decreased by 5.4% for these criminals.

Individuals with 1 strike reduce their likelihood of committing a serious crime by 8.2%

Little evidence to suggest that the third strike penalty reduced crime through deterrence. It showed that those with a 25 to life sentence with two strikes were no more affected than a person with one strike and a double conviction

LIMITATIONS OF THE CASE STUDY Treatment group was only limited to California Unnamed states – uncertainty regarding factors that affect crime rates

Gender bias Only examines individuals who have the tendency to commit crime, not all members of society

LIMITATIONS OF THE MODEL Differences in individuals’ risk preferences Rationality assumption Constructed based on official reported crime statistics <- easily influenced by victim’s willingness to report crime by police recording practices and procedures

Differences in ethical, religious, moral beliefs

CONCLUSION Punishment showed statistically to have only a small effect on crime deterrence and reoffending

Implies other factors are responsible for fall in crime since 1990’s

Police enforcement, legalisation of abortion, decline in crack consumption

Incarceration argument does not look at the social effect it has on society such as family breakdown, e.g: I in 9 African American children has a parent in prison

APPENDIX Table 1.

List of Triggering Offenses (List of Strike able Offenses)113 “Strikeable offenses” under the three strikes law are broken down into two categories: Violent

felonies and serious felonies. Whether an individual commits a serious felony or a violent felony does not matter for the purposes of future sentencing.

Violent Felonies Murder -Attempted Murder Manslaughter Rape by force or violence Child molestation Any felony resulting in great bodily injury or in which a firearm was used- Robbery of an inhabited dwelling in which a deadly or dangerous weapon was used-Out-of-

state kidnapping Serious Felonies

Aggravated assault Arson Exploding a destructive device with intent to do harm Burglary of an inhabited dwelling Robbery or bank robbery Kidnapping-Any felony in which the defendant used a dangerous or deadly weapon selling or

distributing heroin, cocaine.

Techniques for empirical analysis of natural experiments Matching Instrumental Variables Regression Discontinuity Fixed Effects Difference in Differences

Assumptions of difference-in-differences

• DID requires a parallel trend assumption

• Composition of individuals of the two groups is assumed to remain unchanged over time. 

• ‘Treatment’ and ‘control’ group should be similar in every way except receipt of treatment

• All the assumptions of the OLS model apply equally to DID

TABLE 1

REFERENCES Aaron Chalfin, Justin McCary, May 9, 2014. Criminal Deterrence: A Review

of the Literature. Chettiar, I. M., February 11, 2015. The Atlantic. [Online]

Available at: http://www.theatlantic.com/features/archive/2015/02/the-many-causes-of-americas-decline-in-crime/385364/

Marcet, D., 2011. Three Strikes and You're Out: A Triple Differences Approach to Estimating the Deterrent Effect of California's Three Strikes Law.