Crime, Punishment, and the Market for Offenses

he persistence of illegal activity throughout human history and some of its apparent regularities have long attracted the attention of economists. For example, Adam Smith (1776 [1937], p. 670) observed that crime and the demand for protection from crime are both motivated by the accumulation of property. William Paley (1785 [1822]) presented a penetrating analysis of factors responsible for differences in the actual magnitudes of probability and severity of sanctions for different crimes. Jeremy Bentham, the father of utilitarianism, focused considerable attention on the calculus of both offenders' behavior and the optimal response by the legal authorities. It was not until the late 1960s, however, that economists reconnected with the subject, using modern economic analysis.' In this paper I shall focus on two of the main themes that characterize the literature on crime in the last three decades. The first is the evolution of a "market model" that offers a comprehensive framework for studying the problem. Like the classical approach, the model builds on the assumption that offenders, as members of the human race, respond to incentives. Of course, not every single offender does so. But willful engagement in even the most reprehensible violations of legal and moral codes does not preclude an ability to make self-serving choices, and this has been the justification for applying economic analysis to all illegal activities, from speeding and tax evasion to murder.