The Economics of Crime

Abstract

Crime is a major activity in the US, with implications for poverty and the allocation of public and private resources. The economics of crime focuses on the effect of incentives on criminal behavior, the way decisions interact in a market setting; and the use of a benefit-cost framework to assess alternative strategies to reduce crime. This essay shows that most empirical evidence supports the role of incentives in the criminal decision: legitimate labor market experiences, sanctions including incarceration, and the risk of apprehension all influence decisions to engage in crime. By putting crime into a market setting, economic analysis highlights the difficulty of reducing crime through incapacitation: when the elasticity of supply to crime is high, one criminal replaces another in the market; and thus the importance of deterring crime by altering behavior. Most analyses show that "crime pays" in the sense of offering higher wages than legitimate work, presumably in part to offset the risk of apprehension. But some important facts about crime -- long term trend increases and decreases; the geographic concentration of crime; the preponderance of men and the young in crime -- seem to go beyond basic economic analysis.