economics 160 votey, lecture 4, notes, p. 47 lecture 7 professor votey crime control: equity vs....

Economics 160 Economics 160

Votey, Lecture 4, Notes, p. 47

Lecture 7

Professor Votey

Crime Control: Equity vs. Efficiency

But First:But First:

Some points we didn’t have time to coverSome points we didn’t have time to cover

from my last lecture:from my last lecture:

Unemployment rateUnemployment rate

((Percent)Percent)

UnemployedUnemployed (thousands)(thousands)

What Has Been Happening to the U. S. Economy ?What Has Been Happening to the U. S. Economy ?

Civilian labor force participation rate (Percent)

Not in the Labor ForceNot in the Labor Force (thousands) (thousands)

Discussion PointsDiscussion Points We have a turning point in economic conditionsWe have a turning point in economic conditions Effects vary across regions and industriesEffects vary across regions and industries Unemployment rates only tell a part of the storyUnemployment rates only tell a part of the story

People lose their jobsPeople lose their jobs Those who can apply for unemployment benefitsThose who can apply for unemployment benefits

These are the These are the UnemployedUnemployed Those who can’t find work may cease to searchThose who can’t find work may cease to search

These are These are Not In The Labor ForceNot In The Labor Force This is what Phillip Cook didn’t understandThis is what Phillip Cook didn’t understand

Conclusion: In determining causal forces-One cannot ignore Conclusion: In determining causal forces-One cannot ignore Labor Force Participation RatesLabor Force Participation Rates

The bad news was that the longer term outlook forThe bad news was that the longer term outlook for U.S. labor had taken an abrupt turn for the worseU.S. labor had taken an abrupt turn for the worse

U.S. Employment Levels 1992 – 2008, thousandsU.S. Employment Levels 1992 – 2008, thousands

TrendsTrends

While we were being told that there had been a full recovery from the recession at the While we were being told that there had been a full recovery from the recession at the beginning of the Bush presidency, a lot of people’s problemsbeginning of the Bush presidency, a lot of people’s problems

were being overlooked !were being overlooked !The effects of population growth should have returned the nation to the old trend line.The effects of population growth should have returned the nation to the old trend line.

Points to rememberPoints to remember Who are the most crime prone elements of Who are the most crime prone elements of

society? Why?society? Why? How do they fit into a model of crime How do they fit into a model of crime

generation and control? Can we explain the generation and control? Can we explain the why?why?

Why do we think blacks responded to crime Why do we think blacks responded to crime in a different pattern from whites?in a different pattern from whites?

What has been happening with respect to What has been happening with respect to women and crime? Again, why?women and crime? Again, why?

What did Phillip Cook overlook?What did Phillip Cook overlook?

Today’s Topic Today’s Topic

Crime Control: Equity vs. Efficiency

Notes, p.47Notes, p.47

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

The Economic ParadigmThe Economic Paradigm Recall the 3 stepsRecall the 3 steps

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

But Equity is about Fairness-in an economic sense-But Equity is about Fairness-in an economic sense-the Distribution of Incomethe Distribution of Income

We have We have NONO theoretical guidance to a theoretical guidance to a distributiondistribution of incomeof incomeso conceptually perfect as Pareto Optimality. Efficient markets so conceptually perfect as Pareto Optimality. Efficient markets won’t get us there unaided.won’t get us there unaided.

In a market economy- or any democracy for that matterIn a market economy- or any democracy for that matterEquity is generally achieved through Tax PolicyEquity is generally achieved through Tax Policy

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

George Bush accused his opponents of resorting to class warfare

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

It was a clever strategy - the equivalent of trying to seize It was a clever strategy - the equivalent of trying to seize the high ground in a battlethe high ground in a battle

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

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

Those people are conservative investors who invest to Those people are conservative investors who invest to protect their positionsprotect 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 jobsthat upper bracket who will invest to create new jobs

It was a clever strategy-the equivalent of trying to It was a clever strategy-the equivalent of trying to seize the high ground in a battleseize the high ground in a battle

Now, the opposition is trying to maintain the Now, the opposition is trying to maintain the Bush position by claiming that it is the upper Bush position by claiming that it is the upper income brackets that will invest the money to income brackets that will invest the money to create jobscreate jobs

But, in a recent online debate, it was pointed out But, in a recent online debate, it was pointed out that it wasn’t the extremethat it wasn’t the extreme upper end of the upper end of the distributiondistribution who would invest in job creatingwho would invest in job creating activities.activities.

Rather, it was the upperRather, it was the upper middle classmiddle class investors investors who were trying to reach those upper brackets, who were trying to reach those upper brackets, who created new jobswho created new jobs

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

The Search for The Search for EquityEquity Lester Thurow discusses the problem, “Equity vs. Efficiency in Lester Thurow discusses the problem, “Equity vs. Efficiency in

Law Enforcement” Law Enforcement” 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 Santa Barbara County vs. Isla VistaSanta Barbara County vs. Isla Vista

Achieving EquityAchieving Equity

If If EfficiencyEfficiency is easy, why is equity hardis easy, why is equity hard ?? Efficiency:Efficiency: The competitive market systemThe competitive market system Equity:Equity: What is Fair?What is Fair? Our country has a long history in the search for equity -from the sit down strikes in the auto industry in the 30’s Our country has a long history in the search for equity -from the sit down strikes in the auto industry in the 30’s

and the strikes of the coal miners in the 40’s to the reaction to the corruption of labor leaders with the Teamstersand the strikes of the coal miners in the 40’s to the reaction to the corruption of labor leaders with the Teamsters

The American RevolutionThe American Revolution


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 the It was mostly what we talked about leading to the

election.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 spell out how we shall be Our representatives spell 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 statesControl 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 equal, that they are endowed “all men are created equal, 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?

IfIf EfficiencyEfficiency is easy, why is equity hardis easy, why is equity hard ?? Efficiency:Efficiency: The competitive market The competitive market

systemsystem Equity:Equity: the people vs. Whom?the people vs. Whom? PoliticiansPoliticians MUSTMUST believe in Equitybelieve in Equity

Crime VictimizationCrime Victimization::


If Efficiency is easy, why is equity hard If Efficiency is easy, why is equity hard ??Efficiency: The competitive market Efficiency: The competitive market

systemsystemEquity: the people vs. Whom?Equity: the people vs. Whom?

Politicians MUST believe in Politicians MUST believe in EquityEquity

Crime Victimization:Crime Victimization: EquityEquity ??


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 ?? BlacksBlacks

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. 48)4 Concepts

Back to Economic Theory (Notes, p. 48)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.49Notes, p.49


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.50 Notes, p.50 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.51Notes, p.51 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.51Notes, p.51

$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

Notes, p.51 Notes, p.51 Notes, p.51Notes, p.51

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 Fig.4.8, Notes p.52Fig.4.8, Notes p.52

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 resourses 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 resourses 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 resourses rquantity of resourses 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 justice 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 recent election debate was over Equity issuesMuch of the recent 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

economics 160 votey, lecture 4, notes, p. 47 lecture 7 professor votey crime control: equity vs....

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