Chapter 12: An Economic Theory of Crime and Punishment
•Law should minimize the sum of the costs of crime and its prevention (yields the
“optimal amount of crime.”
oThis answers the two main questions “What acts should be punished and
to what extent?”
oAgrees with the utilitarian thought (contrasts the retributivism thought).
•Retributivism says that criminal law and policy should do what is morally right,
regardless of whether doing so minimizes social costs.
oI.e. the law should punish those who intentionally harm others and commit
a crime and the punishment exacted should be proportional to the
seriousness of the crime or how morally wrong it is (does not matter if it
minimizes social costs).
•Criminal law differs from civil law in the following ways:
oThe criminal intended to do wrong, whereas some civil wrongs are
oThe harm done by the criminal was public as well as private
oThe plaintiff is the state, not a private individual
oThe plaintiff has a higher standard of proof in a criminal trial than in a
oIf the defendant is guilty, then they will be punished
•Tort law mostly concerns accidental harm; criminal law mostly concerns
•Mens rea is the legal term for criminal intent.
•The following continuum can help classify an act and the proper remedy (if
view of crimes is that the majority of harm is done to the public from its
oThis has several implications:
Justifies the difference between the plaintiffs in civil and criminal
the private individual (victim)
society as represented by the public
prosecutor or attorney general
Line Separating Civil
Wrongs from Criminal Wrongs
It implies the possibility of “victimless” crimes (i.e. gambling,
prostitution, sale of illegal drugs).
•The traditional theory holds that the victim is society,
whose peace and security are threatened.
Justifies punishing attempts to cause harm, even when they fail.
•Failed attempts at crime (called a inchoate crime) cause
fear and other harm to the public although there was no
direct harm imposed.
oThe theory holds that they should still be punished.
•A higher standard of proof must be met by the plaintiff in a criminal case than in a
preponderance of the evidence (> 50%)
beyond a reasonable doubt
•Three reasons for imposing a higher standard of proof:
oConvicting an innocent person seems worse than failing to convict a guilty
I.e. it is a trade off between Type I (false negative) and Type II
(false positive) errors.
oIt diminishes the advantage of the prosecutor to bring the full resources of
the state to bear on winning.
oCitizens may need protection from overzealous prosecutors who seek
bureaucratic and political advancement.
•Reason why civil law countries may encourage an intimate relationship between
judges/prosecutors is that there will be a reduction in errors by judge/prosecutor
(important since criminal cases are high-stakes).
oKnowing the judges perspective helps prosecutors avoid wasting court
oJudges are also more effective in developing arguments when they have
had experience as prosecutors.
In civil law countries, judges play a more active role in a suit so
this aids in them making correct decisions.
•People who commit crimes expose themselves to the risk of punishment.
o(Example using money) perfect disgorgement compensation is a sum of
money that leaves the injurer indifferent between the injury with
disgorgement or no injury.
Monetary punishment is a sum of money that makes the injurer
prefer no injury rather than injury with the payment of money.
•Punishment may be exacted on top of compensation given to the victim since the
two are independent of each other (i.e. punishment does not directly benefit the
•Since most crimes are also torts, if civil law made injurers fully internalize the
costs of crimes, then criminal law would be unnecessary from an economic
oBut civil suits cannot internalize the costs of crimes.
•Reasons why civil suits cannot internalize the costs of crimes:
oPerfect compensation is difficult to achieve.
It is hard to value incompensable harms and thus it is better if they
did not occur to begin with.
oCriminal punishment aims to deter intentional harms.
The concept of indifference (goal of compensation) is difficult to
apply to crimes.
oPerfect compensation could be possible in principle but not in fact due to
the problem of preference revelation.
Preference revelation occurs where there is no market to induce
people to reveal their subjective valuations (courts cannot
objectively award compensatory damages).
oProtecting interests secures wealth, and protecting rights secures liberty.
Civil law can only protect interest and not rights.
Example for why rights should be protected
that change hands without the consent of both parts may result in
the thief placing less value on the item than the original owner.
•Society benefits when goods are moved from those that
value goods LESS to those who value them MORE.
oPunishment is often necessary for deterrence.
I.e. a thief may have an expected net benefit > 0 when
contemplating if they should steal something
punishment to push that amount < 0, the thief will steal.
With deterrence as the goal, actors are not free to pay the price and
do as they please (as is the case in civil law).
•Punishments are calibrated to deter those actors who prefer
to do the act in spite of the price.
Deterrence requires a more severe punishment when there is a
greater psychological commitment to the act (i.e. a deliberate act
should be punished more than the same act done spontaneously).
•Internalization, on the other hand, depends on the amount
of harm caused rather than the intention of the act.
•The amount of compensation through internalization will
be the same regardless if the act was deliberate or
•Acts should be punished when the aim is deterrence, whereas acts should be
priced when the aim is internalization.
oDeterrence is the goal when perfect compensation is impossible in
practice/principle, when people want law to protect their rights (not
interests), or when enforcement errors systematically undermine liability.
•Economic theory assumes a rational, amoral person
someone who carefully
determines the means to achieve illegal ends, without restraint by guilt or