Economics 160

Economics 160 Economics 160

Votey, Lecture 4, Notes, p. 51

Lecture 7

Professor Votey

Crime Control: Equity vs. Efficiency

Today’s Topic Today’s Topic

Crime Control: Equity vs. Efficiency

Notes, p.51Notes, p.51

Efficiency has always been considered an Efficiency has always been considered an easy objective – because it resulted almost easy objective – because it resulted almost automatically with competitive marketsautomatically with competitive markets

Crime Control: Equity vs. Efficiency Crime Control: Equity vs. Efficiency The Economic ParadigmThe Economic Paradigm

Recall the 3 stepsRecall the 3 steps

In a market economy, we expect competitive markets to lead us to efficiency In a market economy, we expect competitive markets to lead us to efficiency

In fact, For Economic Efficiency the process is virtually automatic in an In fact, For Economic Efficiency the process is virtually automatic in an efficient efficient market system.market system.

But in a non-market decision process, it is the Economic Paradigm that gets But in a non-market decision process, it is the Economic Paradigm that gets us thereus there

A laudable goal:A laudable goal: Economic Efficiency – the power behind our Cold War Economic Efficiency – the power behind our Cold War success.success.

But Equity is about Fairness-in an economic sense that is reflected But Equity is about Fairness-in an economic sense that is reflected

in the Distribution of Incomein the Distribution of Income

We have We have NONO theoretical guidance to a theoretical guidance to a distributiondistribution of income soof income so conceptually conceptually perfect as Pareto Optimality, and Efficient Markets won’t perfect as Pareto Optimality, and Efficient Markets won’t

get us there.get us there.

Recall: When there were objections to the form of Bush’s tax cut legislation –

George Bush accused opponents of class warfare.

It was a clever strategy - the equivalent of trying to seize the high It was a clever strategy - the equivalent of trying to seize the high

ground in a battle. ground in a battle.

If anyone were to be accused of class warfare, it should If anyone were to be accused of class warfare, it should have been George Bush. have been George Bush.

In fact, the Bush policies affected the income distribution In fact, the Bush policies affected the income distribution adversely in two ways: adversely in two ways:

A recent study shows that the states that voted for Bush and his A recent study shows that the states that voted for Bush and his policies uniformly received a significantly policies uniformly received a significantly greatergreater share of federal share of federal subsidies and other support than those that didn’t. subsidies and other support than those that didn’t.

And the upper 5-10% of the income distribution received And the upper 5-10% of the income distribution received substantiallysubstantially larger shares of the benefits than lower income classes. larger shares of the benefits than lower income classes.

The distribution of income is always a sensitive topic.The distribution of income is always a sensitive topic.

Now, conservatives are trying to maintain the Bush position by Now, conservatives are trying to maintain the Bush position by claiming that, in the current recession, it is the upper income claiming that, in the current recession, it is the upper income brackets that invest their money to create jobs.brackets that invest their money to create jobs.

But, in a recent online debate, it was pointed out that it wasn’t But, in a recent online debate, it was pointed out that it wasn’t thethe extremeextreme upper end of the distribution who would invest in upper end of the distribution who would invest in job creating activities. job creating activities.

Those people are conservative investors who invest to Those people are conservative investors who invest to protectprotect their positions,their positions,

Rather, it is the upperRather, it is the upper middle classmiddle class investors trying to reach investors trying to reach that upper bracket who will invest to create new jobs.that upper bracket who will invest to create new jobs.

Crime Control: Equity vs. EfficiencyCrime Control: Equity vs. Efficiency

The Search for The Search for EquityEquity Lester Thurow’s discussion of the problem, “Equity vs. Lester Thurow’s discussion of the problem, “Equity vs.

Efficiency in Law Enforcement” makes an entirely different Efficiency in Law Enforcement” makes an entirely different point. point.

His quote:His quote: Equity in law enforcement will make some people better off Equity in law enforcement will make some people better off

-by making us collectively worse off? -by making us collectively worse off?

Disparate Crime LevelsDisparate Crime Levels North Dakota vs. CaliforniaNorth Dakota vs. California The rest of Santa Barbara County vs. Isla VistaThe rest of Santa Barbara County vs. Isla Vista

If If EfficiencyEfficiency is easy, why is equity hardis easy, why is equity hard ?? Efficiency:Efficiency: The competitive market systemThe competitive market system

Even here it has been a while since we have had a Even here it has been a while since we have had a truly competitive market for much of what we consume. truly competitive market for much of what we consume.

How many times have we seen a firm, fighting against How many times have we seen a firm, fighting against

competition seeking a merger to gain market power?competition seeking a merger to gain market power? So the fact is – efficiency recently hasn’t So the fact is – efficiency recently hasn’t

been easy because the curbs we had on been easy because the curbs we had on monopoly have been little used of late. monopoly have been little used of late.

Once more, the consumer loses out, particularlyOnce more, the consumer loses out, particularly at the lower end of the income distribution. at the lower end of the income distribution.

Producers don’t really want competitive markets. They Producers don’t really want competitive markets. They want markets they can dominate. want markets they can dominate.

Equity:Equity: Is about Is about What is Fair?What is Fair? Our country has a long history in the Our country has a long history in the

search for equity -from the sit down search for equity -from the sit down strikes in the auto industry in the 30’s and strikes in the auto industry in the 30’s and the strikes of the coal miners in the 40’s the strikes of the coal miners in the 40’s to the reaction to the corruption of labor to the reaction to the corruption of labor leaders with the Teamsters.leaders with the Teamsters.

The American RevolutionThe American Revolution

Achieving EquityAchieving Equity

Now we have people being hurt by the economy Now we have people being hurt by the economy again and equity has a renewed focus. The again and equity has a renewed focus. The working middle class has been ignored.working middle class has been ignored.

We are back to asking ourselves: How do we dealWe are back to asking ourselves: How do we deal with equity issues? with equity issues? It was mostly what we talked about leading to theIt was mostly what we talked about leading to the

past national election. past national election.

The American pursuit of equity starts withThe American pursuit of equity starts with TThe American Revolutionhe American Revolution

Why did we go to war with England?Why did we go to war with England?

““Taxation without representation”Taxation without representation” Unfair regulation of our tradeUnfair regulation of our trade No say in the enactment of laws governingNo say in the enactment of laws governing

the colonies. No the colonies. No Magna Carta LibertatumMagna Carta Libertatum ("Great Charter of Freedoms")("Great Charter of Freedoms") for usfor us

It was a desire for freedom – but underlying It was a desire for freedom – but underlying that was a search for that was a search for equityequity

How does all of this relate to crime and justice?How does all of this relate to crime and justice?


The ConstitutionThe Constitution Our representatives spelled out how we shall be Our representatives spelled out how we shall be

governedgoverned Our rights and responsibilities are set downOur rights and responsibilities are set down Equity is servedEquity is served


Preamble to the ConstitutionPreamble to the Constitution the Union was formed:the Union was formed: ““to . . . establish justice, insure domestic to . . . establish justice, insure domestic

tranquility. tranquility. ., . . .., . . .promote the general welfare.”.” ButBut


Article IV, Section 4.Article IV, Section 4. There is no explicit mention of Congressional power There is no explicit mention of Congressional power

to deal with domestic crime. The article states:to deal with domestic crime. The article states: states can get help in cases of “domestic states can get help in cases of “domestic

violence . . . on application of the Legislature, or the violence . . . on application of the Legislature, or the Executive (when the Legislature cannot be Executive (when the Legislature cannot be convened)”.convened)”.


Amendment X.Amendment X. Control of crime is left to the states:Control of crime is left to the states: ““STATES RIGHTSSTATES RIGHTS

Powers not delegated to the United States by the Powers not delegated to the United States by the Constitution nor prohibited by it to the States, are reserved Constitution nor prohibited by it to the States, are reserved to the States respectively, or to the people.”to the States respectively, or to the people.”

Note that criminal cases in court are described as “The Note that criminal cases in court are described as “The People versus . . .”People versus . . .”


Article VI, Section 2.Article VI, Section 2. ““The citizens of each State shall be entitled to all The citizens of each State shall be entitled to all

of the Privileges and Immunities of the Citizens of the Privileges and Immunities of the Citizens in the several States.” in the several States.”


The Declaration of IndependenceThe Declaration of Independence asserts:asserts:

““all men are created equalall men are created equal, that they are endowed , that they are endowed by their Creator with certain, inalienable rights, by their Creator with certain, inalienable rights, that among these are Life, Liberty, and the pursuit that among these are Life, Liberty, and the pursuit of Happiness.”of Happiness.”


PoliticiansPoliticians MUSTMUST believe in Equitybelieve in Equity Maybe we should just say Maybe we should just say

Should believe in equityShould believe in equity

Achieving Equity What is the evidence?

Achieving Equity What is the evidence?

Compared toCompared to Efficiency,Efficiency, equity is hardequity is hard When dealing with crime, Equity isWhen dealing with crime, Equity is the people vs. Whom?the people vs. Whom? but it can be other effects as wellbut it can be other effects as well PoliticiansPoliticians MUSTMUST believe in Equitybelieve in Equity??

Crime VictimizationCrime Victimization: Is it equitable?: Is it equitable?


Crime Victimization:Crime Victimization: EquityEquity ?? YouthsYouths

the most likely victims of crimethe most likely victims of crime Violence peak: Victim age approx. 19Violence peak: Victim age approx. 19 Theft peak: Victim age approx. 20Theft peak: Victim age approx. 20


Crime Victimization:Crime Victimization: EquityEquity ??

•Males•More likely victims of theft•Much more likely victims of violence


Crime Victimization:Crime Victimization: EquityEquity ?? Blacks and hispanicsBlacks and hispanics

most likely victims of violencemost likely victims of violenceapprox. equal to whites as victims of theftapprox. equal to whites as victims of theft


Crime Victimization:Crime Victimization: EquityEquity ?? the Poorthe Poor

more likely victims of violencemore likely victims of violence for incomes Less than $30,000, equallyfor incomes Less than $30,000, equally

high for theft high for theft Report to the Nation, Report to the Nation, data from 1985data from 1985

Back to Economic Theory (Notes, p. 52)4 Concepts

Back to Economic Theory (Notes, p. 52)4 Concepts

1. The Expenditure Function (for Law Enforcement)

$wL

LResources

L1

wL1

0

B

A

w = Wage for Police i.e., Resource CostL = Resource quantity

E

Note that:

tan = AB = wL1 = w

0A L1

wL is the Expenditure Level,so any point on line 0E represents the expenditure levelfor the corresponding level of L


4 Concepts (-cont.)4 Concepts (-cont.)

2. Isovalue Line

$wL

$M1 $MOther Goods and Services

wL1

*

* 450 if scale same on both axes

This is the Budget Constraint of a Higher Income Community



3. Community Preferences (Indifference Curves)

0 OF1 OFPublic Safety (GOOD) Offenses (a BAD)

$MOther Goodsand Services

U3U2 U1

U3 > U2 > U1

Curves imply that as incomes rise, the community would pay more to eliminate agiven amount of crime

OFOF



4. Crime Control Technology

OF

L0

If Crime is ControllableOF1

L1 L2

OF2

ResourcesNotes, p.52Notes, p.52


4. Crime Control Technology

OF

L0

If Crime is not Controllable

Resources

the curve would look like this


$M

OF

$wL

L1.Expenditure Function 4.Crime Control Technology

2. Budget Constraint 3.PreferencesI.II.

III. Notes, p.53 Notes, p.53 IV.

0

N Crime-ConsumptionPossibility Frontier

MR

OFR

wLR

LR

OFR is the Cost Minimizinglevel of Offenses with $wLR

expenditures for CrimeControl

$M

OF

$wL



III. Notes, p.54Notes, p.54 IV.

0

N

Crime-ConsumptionPossibility Frontier

OFR

YR

YR

Suppose there is alsoa Poor Community, withincome YPYP

YP

YP

Questions?Questions?

$M

OF

$wL




0

N


OFR

YR

YR

Suppose there is alsoa Poor Community, withincome YPYP

YP

YP

$M

OF

$wL




0

N


OFR

YR

YR

Suppose there is alsoa Poor Community, withincome YPYP YP

YP

$M

OF

$wL




0

N


OFR

YR

YR

Suppose there is alsoa Poor Community, withincome YPYP YP

YP

S

OFP

$M

OF

$wL




0

N


OFR

YR

YR

YP

YP

S

OFP

Note that the Poor community has a higher level of crime, OFP > OFR

(See Notes, Fig. 4.6)

$M

OF

$wL




0

N


OFR

YR

YR

YP

YP

S

OFP


$M

OF

$wL




0

N


OFR

YR

YR

YP

YP

S

OFP


Yet the Poor community is spending a greater share of its lower income on Crime Control (See Notes, Fig. 4.7)

$M

OF

$wL




0

N


OFR

YR

YR

The implications of this can be seen by closer examinationof the result in Quadrant IV. YP

YP

S

OFP

PR

$M

OF

$wL




0


OFR

YR

YR

The implications of this can be seen by closer examinationof the result in Quadrant IV. YP

YP OFP

PR

NN

SS

$M

OF

$wL




0

N


OFR

YR

YR

YP

YP

S

OFP

PR

Points P and R are thecost minimizing points forthe Poor and Richcommunities

$M

OF

$wL



II.

0

N


OFR

YR

YR

YP

YP

S

OFP

PR

The Orange (pp) line reflects the imputed relative price of resources to offenses for the Poor community.(see Notes, Fig.4.9)

p

p

IVNotes, p.54Notes, p.54

$M

OF

$wL



III. IV.

0

N


OFR

YR

YR

YP

YP

S

OFPr

PR

The Red (rr) line reflects the imputed relative price ofresources to offenses forthe Rich community.

P

P

r

r


The Implicit Value the Community Places on Public Safety or Losses to Crime

Economic Theory: 2 Goods

Y(Oranges)

B X (Apples)

X1

Y1

Slope of AB = tan = 0A

0B

= quantity of Y

quantity of X = pX / pY or

= price of X in terms of Y

0

A

Line AB can be thought of as the budget constraint which can also be written as

Income = pX.X1 + pY

.Y1Understanding this allows us to impute the price the communityplaces on Crime

It helps to rotate the figure (Notes, Fig. 4.6)in Quadrant IV. 900 to the left

p

p

r

r

L

OF

P

R

Crime Control Technology

At the upper left end we have all offenses, no control costs.

Line pp represents the Social Cost of Crime for

the Poor community. How ?

0

At the lower right end, we have all resource costs, no crime.At P, we have the attainable mix chosen by society.

The line pp is an isovalue line like the budget constraint, and in thiscase is the lowest attainable cost of crime for the Poor community.

Consider what Minimum Social Cost of Crime means:Consider what Minimum Social Cost of Crime means:

The Objective has been written:The Objective has been written:

Min. SC = VC + CC (victim costs plus control Min. SC = VC + CC (victim costs plus control costs)costs)

This is the same asThis is the same as

Min. SC = r Min. SC = r .. OF + w OF + w .. L L

where where rr is the is the loss rateloss rate or damages to the or damages to the victim, per offense (OF), victim, per offense (OF), andand

ww is the resource price or wage per is the resource price or wage per resource unit (L). resource unit (L).

Just as with the Budget ConstraintJust as with the Budget Constraint

Income = pIncome = pXX .. X + p X + pYY .. Y Y

and as in the theoretical illustrationand as in the theoretical illustration

The Implicit Value the Community Places on Public Safety or Losses to Crime

Economic Theory: 2 Goods

Y(Oranges)

X (Apples)

X1

Y1

• Slope of AB = tan = 0A

0B

= quantity of Y

quantity of X = price of X in terms of Y

A

B

0

Consider what Minimum Social Cost of Crime means: (-cont.)

Consider what Minimum Social Cost of Crime means: (-cont.)

• Slope of AB = tan Slope of AB = tan == 0A0A

0B0B

== quantity of Yquantity of Y

quantity of Xquantity of X = = ppXX / p / pY Y or or

= price of X in terms of Y, similarly= price of X in terms of Y, similarlySlope of pp = quantity of offenses = pL / pOF = w quantity of resources r

Finally, since, in absolute value, the slope of pp is greater than the slope of rr

(look again at the figure from Quadrant IV.)

The figure from Quadrant IV. rotated 900 to the left

p

p

r

r

L

OF

P

R

Crime Control Technology

Consider what Minimum Social Cost of Crime means: (-cont.)Consider what Minimum Social Cost of Crime means: (-cont.)


0B0B


quantity of Xquantity of X = p= pXX / p / pY Y or or

= price of X in terms of Y, similarly= price of X in terms of Y, similarly

Slope of pp = quantity of offenses = pL / pOF = w quantity of resources r

Finally, since, in absolute value, the slope of pp is greater than the slope of rr

(w / r) for the Poor community > (w / r) for the Rich community

,this implies that

Consider what Minimum Social Cost of Crime means: (-cont.)Consider what Minimum Social Cost of Crime means: (-cont.)


0B0B


quantity of Xquantity of X = p= pXX / p / pY Y or or

= price of X in terms of Y, similarly= price of X in terms of Y, similarly

Slope of pp Slope of pp == quantity of offensesquantity of offenses = = ppLL / p / pOF = OF = ww

quantity of resources rquantity of resources r Finally, since, in absolute value, the slope of Finally, since, in absolute value, the slope of pppp is greater than tha slope is greater than tha slope of of rr (look again at the figure from Quadrant IV.)rr (look again at the figure from Quadrant IV.),, this implies that this implies that

(w / r)for the Poor community (w / r)for the Poor community >> (w / r) for the Rich community (w / r) for the Rich community

Which, in turn, means that the loss rate (r) for the Poor community is smaller than that for the Rich community.

The logic and the irony: The logic and the irony:

Efficiency does not lead to EquityEfficiency does not lead to Equity

It should not be surprising that damages per offense are It should not be surprising that damages per offense are lower in poor communities than in rich ones.lower in poor communities than in rich ones.

Nor should it be surprising that rich communities are Nor should it be surprising that rich communities are more willing to pay for defense against crime.more willing to pay for defense against crime.

The irony is that, in the face of this,The irony is that, in the face of this, poor communitiespoor communities will have a tendencywill have a tendency to to spend a greater proportion spend a greater proportion of income on crime controlof income on crime control andand yet sufferyet suffer from from higher crime rates.higher crime rates.

The logic and the irony: Efficiency does not lead to Equity

The logic and the irony: Efficiency does not lead to Equity

It should not be surprising that damages per offense are lower It should not be surprising that damages per offense are lower in poor communities than in rich ones.in poor communities than in rich ones.

Nor should it be surprising that rich communities are more Nor should it be surprising that rich communities are more willing to pay for defense against crime.willing to pay for defense against crime.

The irony is that, in the face of this, poor communities will The irony is that, in the face of this, poor communities will have a tendency to spend a greater proportion of have a tendency to spend a greater proportion of income on crime control and yet suffer from higher income on crime control and yet suffer from higher crime rates.crime rates.

See references to real world data in this regard in Phillips & Votey, Ch. 5

The theoretical model is supported by empirical evidence.

The Bad News may not be overThe Bad News may not be over

So far we have assumed that communities have identical preferences and identical crime control technologies.

Suppose, however, that the poor community is lacking ineconomic opportunities for youth and women, relative tothe rich community.

How would this affect the outcome ?

Consider the Crime Control Technology

Consider the Crime Control TechnologyConsider the Crime Control Technology

LResources

OF

L1

OFR

OFP

CCTR|SE1

CCTP|SE2

Recall: OF = g( CR, SV, SE, MC)

CR = f( OF, L )

$M

OF

$wL



III. IV.

0

N


OFR

YR

YR

YP

YP

S

OFP

A still higherOffense RateAnd an Even greater

proportion of incomespent for crime control

Questions ?

Questions ?

What does it take to achieve equity?What does it take to achieve equity?

A tax on rich communitiesA tax on rich communities How might we characterize the impact of crime onHow might we characterize the impact of crime on

the poor communities of our analysis?the poor communities of our analysis?

AsAs a disproportionate tax on the poora disproportionate tax on the poor How do we reconcile this with Adam Smith’s How do we reconcile this with Adam Smith’s

conclusions re “the invisible hand”conclusions re “the invisible hand”??

Conclusions?

Non-Market DecisionmakingNon-Market Decisionmaking

Is achieved in a democratic society thru the political Is achieved in a democratic society thru the political processprocess

Adam Smith recognized that the market did not solve Adam Smith recognized that the market did not solve all problemsall problems

A A competitivecompetitive market leads tomarket leads to EfficiencyEfficiency A A concerned citizenryconcerned citizenry if it if it achievesachieves EquityEquity

(thru political processes)(thru political processes) Much of our political debate deals with equity issues Much of our political debate deals with equity issues

Achieving Equity Achieving Equity

The fact is, we formed a nation to bring usThe fact is, we formed a nation to bring us justice justice

The market can help us pay for itThe market can help us pay for it But it is a collective will and a nation But it is a collective will and a nation

working together that will create working together that will create economic justice economic justice

Questions to considerQuestions to consider

What is economic efficiency?What is economic efficiency? What is equity? What is equity? Think about how these concepts differ.Think about how these concepts differ.

How are rich and poor communities likely How are rich and poor communities likely to differ with respect to crime levels?to differ with respect to crime levels?

Can you explain why?Can you explain why? Is the resulting difference Equity?Is the resulting difference Equity? How might greater equity be achieved?How might greater equity be achieved?

Professor PhillipsProfessor Phillips

I. Strategies to Estimate DeterenceI. Strategies to Estimate Deterence// II. II.

Optimization of the Criminal Justice SystemOptimization of the Criminal Justice System

NotesNotes, Phillips 5, Phillips 5thth Lecture Lecture

Next Time

Much of the last election debate was over Equity issuesMuch of the last election debate was over Equity issues

As was the war fought to free us from As was the war fought to free us from British reignBritish reign Taxation without representationTaxation without representation Freedom for colonial ships to compete Freedom for colonial ships to compete

with English cargo vesselswith English cargo vessels Freedom to draft our own regulations in Freedom to draft our own regulations in

all matters all matters

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