Economics 160Votey 2, Notes: pp 13-18Lecture 3

Professor Votey Law Enforcement Effectiveness: Productivity Economics 160

The Science of DecisionmakingMethodology: The Economic ParadigmRecall 3 Steps (Notes, pp 3,4)1. Specification:Specify the Alternative States of the World 2. Valuation:Establish a Value System, e.g. Prices 3. Optimization:Picking the Best Solution Profit Maximization, Cost Minimization

CostsOffenses(Crime Level)Costs to Victims (VC)(CC)Social Costs of Crime (SC)OF*Minimum Social Cost of CrimeMinimizing the Net Social Costs of Crime:

An Application of Economic DecisionmakingThe Tool: Some Form of Cost/Benefit AnalysisControl Costs

Notes, p. 4

CostsOffenses(Crime Level)Costs to Victims (CC)Social Costs of Crime (SC)OF*Minimum Social Cost of CrimeMinimizing the Net Social Costs of Crime:An Application of Economic Decision-makingThe Tool: Some Form of Cost/Benefit AnalysisWe referred to: E. J. Mishan, Cost-Benefit Analysis, Ch. 3,in REFERENCES (RBR)*Control Costs

VC

*Ed Mishan, an English economist is a well known figure to the older members of Econ Department, having been an academic visitor here on at least two occasions (the two during my time here which began in Fall 1966). He is one of the internationally known economists who played a role in developing the economic science behind the huge infrastructure investments made during the Great Depression that created such enormous projects as the Hoover Dam on the Colorado River.That same science would form the basis for any public projects today that might be undertaken to create jobs and repair U. S. infrastructure as has been recently proposed.Since those days, there has been much criticism of such investments, mostly by individuals who believe that any investments by society should be limited to the private

sector since only markets can lead to efficient outcomes. Interestingly, the Hoover Dam, arguably the largest public project undertaken by any country up to that time, was completed under budget and ahead of schedule.There have been many criticisms of such fiscal policy stimulants as originally advocated by the British economist John Maynard Keynes. They do take time to work and only seem to work markedly on a massive scale. Our economy did not fully recover during the 1930s, but the policy was certainly vindicated by our participation in WW II, when we put 16,000,000 people to work in the military while going from a third rate to the greatest military establishment in the world with a two ocean navy and an air force second to none, both of which we continued to maintain following the war, while simultaneously paying for the rebuilding of the economies of both our allies and enemies with Marshall Plan Aid, and while paying off the debt we undertook to fight the war.

Minimizing the Costs of Crime

Minimizing the Costs of CrimeObjective: Min SC = VC + CC

Notes, p 5

Minimizing the Costs of CrimeObjective: Min SC = VC + CC

The Logic:

The minimum social cost of crime is the smallest sumof victim costs plus the costs of crime control.If we minimize the costs of a BAD, we have moreof our resources left to spend on GOODS.

Recall from Lecture 1 the circular flow diagram that represented the interacting system of Crime Generation and ControlText Reference: Economics of Crime Control, Chapter 9 and in Notes, p13

Example: A Steel Mill Resources:Raw Materials: Iron Ore, Coal, LimestoneLabor: Variety of SkillsCapital: Blast Furnace, Oxygen Furnace Rolling Mills, Plating Mills Technology: Means of Linking Inputs Output:Iron, Finished Steel How does one make a Reasonable Analogy between a typical production process and the Criminal Justice System? Conceiving of Outputs

Economic Notions of Productivity

The Criminal Justice SystemA Schematic1. Functions2. Stages of Operation3. Operating EntitiesTheory1. Basis for Defining/Identifying Outputs2. Basis for Evaluating EffectivenessEmpirical Evidence

Criminal Justice System:The Real World ProcessInputOFLaw Enforcement POLICE FORCEStage 1 Function Operating EntityProducesARRESTS Prosecution Stage 2 DACOMPLAINTS Adjudication COURTS Stage 3COMPLAINTSCorrections or PunishmentJAILS,PRISON,PROBATIONCONVICTION (guilty)DISMISSAL (not guilty)Stage 4RELEASE(PAROLE)INDICTMENTSINPUTS/OUTPUTS ? Notes, p 14, Figure 2.2

Education - What is the output?Number of Students ? - or are these inputs? Number of Graduates? Hospitals - What is the Output? Number of Patients ? Again, this is an input Lives Saved? For how long? What determines hospitals rankings?How Good is the output analogy in cases of non-market decision making? Consider other Public Service Industries:

An Aside - about the pastPhysical Outputs in a Command Economy How are they measured?A story from? George Karcz Or maybe Doug MorganAbout Light Fixtures

What did we decide was the proper social objective with respect to CRIME? Minimizing the Social Cost

Minimizing the Social CostWhat does this mean in terms of productivity?

Minimizing the Social CostWhat does this mean in terms of productivity? Reducing Crime Numbers or Seriousness (or both)

Minimizing the Social CostRecall: Social Cost Minimization implies:Min SC = VC + CC i.e., Victim Costs + Control Costs Irrespective of the values we place on individual offenses, as long as they are positive, Social Cost Minimization requires Reducing Crime Numbers or Seriousness

Notes, p.5

Minimizing the Social CostRecall: Social Cost Minimization implies:Min SC = VC + CC i.e., Victim Costs + Control Costs Irrespective of the values we place on individual offenses, as long as they are positive, Social Cost Minimization requires Reducing Crime Numbers or Seriousness or Reducing Control Costs

Minimizing the Social CostRecall: Social Cost Minimization implies:Min SC = VC + CC i.e., Victim Costs + Control Costs Irrespective of the values we place on individual offenses, as long as they are positive, Social Cost Minimization requires Reducing Crime Numbers or Seriousness or Reducing Control Costs Consider the Circular Flow Process: (again)

Minimizing the Social CostIrrespective of the values we place on individual offenses, as long as they are positive, Social Cost Minimization requires Reducing Crime Numbers or Seriousness (or control costs)Recall: Social Cost Minimization implies:Min SC = VC + CC i.e., Victim Costs + Control CostsConsider the Circular Flow Process: (again)Notes, p. 5

Minimizing the Social CostRecall: Social Cost Minimization implies:Min SC = VC + CC i.e., Victim Costs + Control CostsIrrespective of the values we place on individual offenses, as long as they are positive, Social Cost Minimization requires Reducing Crime Numbers or Seriousness (or both)Consider the Circular Flow Process: (again) Victim Costs +

Looking at the Circular Flow Process, One observes that Arrests and Offenses seem to move togetherSeparating the EffectsResort to the Economic Paradigm andEconomic Decision TheoryAppeal to the approach ofThe UtilitariansJeremy Bentham - the father of . . .Modern Economic Decision TheoryBased on Expected Net Benefits

Economic Decision Theory in a NutshellExpected Net Benefits (of any action): Expected Net Benefits = Expected Benefits - Expected Costs E(NB) = E(B) - E(C)In terms of value: the Value of the Expectation = $B x P(B) - $C x P(C) The Basis for: The decision from the potential criminals point of view? AndThe logical counter policy from Societys point of view? These are two sides of the same coin

Working within the framework of the Criminal Justice SystemBenthams focus: Pain - the institutional counterpart:Punishment via the system of Corrections Enlarging the Expectation: Increase the likelihood of painWe call this combination of activities Deterrence The Criminal Justice System: is involved at every stageRaising the expected cost implies: $C x P(C) = P(Arrest) x P(Conv|Arrest) x P(Jail|Conv) x $JailEach Stage contributes to the reduction in CRIME

Criminal Justice SystemMeasures of OutputQuantity MeasuresA. The number of Arrests Made on basis of probable causeB. Arrest Ratio(a relative measure) = AR = Arrests / Offenses Was declining in 1960s and 70s for U.S. and CaliforniaQ. Do Arrests deter crime? Sjoquist, American Economic Review (1973) in References San Diego Problem: Arrests may not be best measure

Criminal Justice SystemMeasures of Output (-cont.)Quality MeasuresA. Clearances (an absolute measure) crimes cleared by arrest = CL The last burglar - an exampleB. Clearance Ratio (a relative measure) = CR = Clearances / Offenses Problems with the Clearance RatioSystem QualityA. Convictions (an absolute measure) Outcome determined in a court of law

Criminal Justice SystemMeasures of Output (-cont.)B. Conviction Ratio (a relative measure) CR = Felony Convictions / Offenses (sometimes CR)Other MeasuresA. Police Ratio = Complaints (filed in courts) / Offenses measures combined quality of Police & DA effortsB. Complaints Ratio = Complaints (filed w/DA) / Arrests measures quality of Police efforts by DA

Output Measures Compared for Homicide in California

What was happening to felony offense rates in California and the U. S. ?Text, p 65

The Decline of Criminal Justice Effectiveness

The Effect of Increasing Expenditures for Law Enforcement in California and the U. S.

How Do We Use Output Measures to Evaluate the System? Economic Production TheoryCase of:Constant Returnsto ScaleFixed ProportionsOutputInputsNotes, Fig.2.3, p.16

Economic Production Theory Applied to Law EnforcementCase of:Varying Proportions

CL LProduction: CL = f( OF, L)OFFENSES(load on the System)

RESOURCES(labor)CLAssumes the loadon the System(offenses) is heldfixedWhat if we hold Resources Fixed and Increase Offenses?Notes, Fig. 2.5, p 17An example of Diminishing Returns

Economic Production Theory Applied to Law EnforcementCase of:Varying Proportions

CL OFOFFENSES(load on the System)

RESOURCES(labor)CLAssumes SystemResources are heldfixed while offensesvaryProduction: CL = f( OF, L)Notes, Fig. 2.5, p.17

Economic Production Theory Applied to Law EnforcementCase of:Varying Proportions

CL OFOFFENSES(load on the System)

RESOURCES(labor)CLAssumes SystemResources are heldfixed while offensesvaryProduction: CL = f( OF, L)So much for Productivity, What does this imply aboutPolice Effectiveness?

Determining Police Effectiveness

CLOF0OF1CL1ANotes Fig. 2.6, p.17

Determining Police Effectiveness

CLOF0OF1CL1AaHow do we measure Police Effectiveness?As Slope of 0A = tan a = OF to A = CL10 to OF1 OF1Notes Fig. 2.6, p.17

Determining Police Effectiveness

CLOF0OF1CL1AaHow do we measure Police Effectiveness?As Slope of 0A = tan a = OF1 A = CL10 OF1 OF1Does anyonerecall what this is?Notes Fig. 2.6, p.17

Determining Police Effectiveness

CLOF0OF1CL1Aatan a = OF1 A = CL1 = CR1 The CLEARANCE RATIO 0 OF1 OF1Notes Fig. 2.6, p.17

To plot the Clearance Ratio for various Offense Levels

CLOF0OF1CL1AaBCL2OF2Notes Fig. 2.6, p.17

To plot the Clearance Ratio for various Offense Levels

CLOF0OF1CL1AaBCL2OF2Plot points A and B in space showing the ClearanceRatio relative to Offense levelsNotes Fig. 2.6, p.17

Plotting points A and B in CR - OF space

CROF0OF1CR1ABCR2OF2Note that CR1 = CL1 > CR2 = CL2 OF1 OF2

and

line AB is drawn holding L constant(CR,OF|L0)What happens to Police Effectiveness with an increase in Police Resources?

CROF0OF1CR1ABCR2OF2

(CR,OF|L0) The change in Police Effectiveness with an increase in Police Resources, holding Offense levels constant(CR,OF|L1)

Higher Effectiveness, Effect of New level of Police ResourcesWe can show this in terms of alternative levels of Resources

CR0

Police Effectiveness in terms of alternative levels of ResourcesLCurves illustrated assumeEconomic Efficiency, i.e.,that Resources are beingused efficiently.Notes, Fig. 2.8, p18What if they are not ?Offenses are being held constant

What if Police are not efficient, but simply satisficing, i.e., just working sufficiently hard to maintain Clearance Ratios?CLOFABWe will not observe diminishingreturns since the police are not working to their limit to begin with.

What if Police are not efficient, but simply satisficing, i.e., just working sufficiently hard to maintain Clearance Ratios?CLOFABWe will not observe diminishingreturns since the police are not working to their limit to begin with.CROFABPerformancestandards appear tobe maintained, sinceClearance Ratiosare maintained

What if Police are not efficient, but simply satisficing, i.e., just working sufficiently hard to maintain Clearance Ratios?CLOFABWe will not observe diminishingreturns since the police are not working to their limit to begin with.CROFABPerformancestandards appear tobe maintained, sinceClearance Ratiosare maintainedWhat would thisimply in Economicterms ?

Depicting Police Manpower Inefficiency

CRefficient productionobserved output levelif police only work tomaintain the ClearanceRatioL

Depicting Police Manpower Inefficiency

CRLefficient productionobserved output levelif police only work tomaintain the ClearanceRatioL1L2slackAs manpower is increasedslack increasesIf this were the true picture, how could we tell ?, but output leveldoesnt rise

Depicting Police Manpower Inefficiency

CRLefficient productionobserved output levelif police only work tomaintain the ClearanceRatioL1L2slackslack increases as manpower increasesThere would be no statistical relationship between Police Resources and the Clearance Ratio.

Looking at the Empirical Evidence:Looking at the Real WorldA. Acquire Data 1. Outputs: CL, CR 2. Inputs: Resources: EMP, OTE, LCase Load: OFTechnological Change: systematic changes over time not related to inputsB. Work Out Theoretical Statistical Models 1. Productivity: CL = f( OF, EMP, OTE, t) 2. Effectiveness: CR = f( OF, EMP, OTE, t) 3. and : CR = f( OF, L ) with other data Based on Theory, what do we expect to find ?

SwitchingNotice that, at this point, I have switched from discussing the theory of what we have studied to moving toward the testing of our theoretical model. Recall the distinction made in the introduction to the course between Positive and Normative economics.We are moving into the realm of Positive Economics determining how the real world of crime and justice works

Such work has been the focus of much of the research of Professor Phillips and myself. A worthy less technical exercise in positive economics: Freakonomics, is by Steven Levitt, who describes himself as a rogue economist. Some of it is about crime. It provides an easy description of the logic behind his work and ours.Throughout the course, we shift between explaining the theory behind our analysis, positive economics testing the theory, and normative economics the discussion of what this all implies for sound public policy.Next, the results of our testing of production theory as it relates to crime and justice.

Expected Outcomes from statistical evaluation:Economic Theory Would PredictdCR / dOF < 0 dCR / dL > 0 dCR / dt > 0 (if Tech D)CR CR CRVarying: OF|L,t Varying: L|F,t Varying L|OF,tt2t1L1 L2The question we would hope to be able to answer by looking at real world data is whether these expectations are borne out.

For the answer one should refer to the text, The Economics of Crime Control, Chapter 9 the statistical form used for estimation: CR = k elt OFw EMPb1 OTEb2 e the Cobb-Douglas Production Function, from Paul Douglas, Are there Laws of Production, American Economic Review (1939)

w, b1, b2 are elasticities w = % D CR 1% DOF

For the answer one should refer to the text, The Economics of Crime Control, Chapter 9 the statistical form used for estimation: CR = k elt OFw EMPb1 OTEb2 e the Cobb-Douglas Production Function, from Paul Douglas, Are there Laws of Production, American Economic Review (1939)

w, b1, b2 are elasticities w = % D CR b 1 = % D CR 1% DOF 1% D EMP

For the answer one should refer to the text, The Economics of Crime Control, Chapter 9 the statistical form used for estimation: CR = k elt OFw EMPb1 OTEb2 e the Cobb-Douglas Production Function, from Paul Douglas, Are there Laws of Production, American Economic Review (1939)

w, b1, b2 are elasticities w = % D CR b 1 = % D CR _ b2 = % D CR__ 1% DOF 1% D EMP 1% D OTE

For the answer one should refer to the text, The Economics of Crime Control, Chapter 9 the statistical form used for estimation: CR = k elt OFw EMPb1 OTEb2 e the Cobb-Douglas Production Function, from Paul Douglas, Are there Laws of Production, American Economic Review (1939)

w, b1, b2 are elasticities w = % D CR b 1 = % D CR b2 = % D CR_ 1% DOF 1% D EMP 1% D OTE l = rate of growth of output, independent of OTE, EMP, OF

Empirical Results for 4 Felony Crimes: Burglary, Larceny(Theft), Auto Theft, Robbery

Empirical Results for 4 Felony Crimes: Burglary, Larceny(Theft), Auto Theft, Robbery Parameter Variable Prediction Estimate Range

Empirical Results for 4 Felony Crimes: Burglary, Larceny(Theft), Auto Theft, Robbery Parameter Variable Prediction Estimate Rangew OF < 0 - .37 to -.88

Empirical Results for 4 Felony Crimes: Burglary, Larceny(Theft), Auto Theft, Robbery Parameter Variable Prediction Estimate Rangew OF < 0 - .37 to -.88b1 EMP > 0 NS to .72

Empirical Results for 4 Felony Crimes: Burglary, Larceny(Theft), Auto Theft, Robbery Parameter Variable Prediction Estimate Rangew OF < 0 - .37 to -.88b1 EMP > 0 NS to .72b2 OTE > 0 .13 to .30

Empirical Results for 4 Felony Crimes: Burglary, Larceny(Theft), Auto Theft, Robbery Parameter Variable Prediction Estimate Rangew OF < 0 - .37 to -.88b1 EMP > 0 NS to .72b2 OTE > 0 .13 to .30 l Time > 0 NS

Empirical Results for 4 Felony Crimes: Burglary, Larceny(Theft), Auto Theft, Robbery Parameter Variable Prediction Estimate Range w OF < 0 - .37 to -.88b1 EMP > 0 NS to .72b2 OTE > 0 .13 to .30 l Time > 0 NS NS = Not statistically different from zero

Empirical Results for 4 Felony Crimes: Burglary, Larceny(Theft), Auto Theft, Robbery Parameter Variable Prediction Estimate Range w OF < 0 - .37 to -.88b1 EMP > 0 NS to .72b2 OTE > 0 .13 to .30 l Time > 0 NS NS = Not statistically different from zeroNote: The formulations estimated for each of the four offenses produced estimates of % of explained variance (R2) ranging from 78 to 86.

Empirical Results for 4 Felony Crimes: Burglary, Larceny(Theft), Auto Theft, Robbery Parameter Variable Prediction Estimate Rangew OF < 0 - .37 to -.88b1 EMP > 0 NS to .72b2 OTE > 0 .13 to .30 l Time > 0 NS NS = Not statistically different from zeroNote: The formulations estimated for each of the four offenses produced estimates of % of explained variance (R2) ranging from 78 to 86.These results can be displayed graphically as well.

Law Enforcement Effectiveness Estimates for the U. S.,1952-1968Text, p. 93EstimationForecast

Patterns for the Clearance Ratio and Offense Rates forRobbery in Comparison with Expenditures for LawEnforcement for the United States, 1952 - 1967.Text, p.93Early Trend in Law EnforcementExpenditures

Recall the More Recent patterns of Offense Rates for California and the U. S.

-and the Levels of Police Protection in Place, Relativeto Overall Offense Rates, over the same period2008

Ideas to RememberThe Economic Paradigm (3 steps)The objective in dealing with crimeMinimizing the Social Cost of CrimeJeremy BenthamWho was he? What did he do?Economic Production TheoryHow does it apply to the analysis of crime?The empirical evidenceWhat does it tell us?

Professor PhillipsJobs and CrimeNotes, Phillips 2, p. 23