Economic of Crime by Simon W. Bowmaker. Summary

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Plan:
1. Ehrlich’s model
2. Models connected to the rise of private protection
a) ‘More guns, less crimes’ written by John Lott
b) Zedlewski’s model
c) Ayres and Levitt (1998): The case of Lojack
3.Difficulties with a data
4. Literature
5. Apendix
1. Despite recent declines crime is still one of the most serious problems of the society. Thus it is important to understand the causes and consequences of criminal activity. A lot of works, researches and theories were proposed by criminologists, jurists and economists. In the last few years economists have directly impacted on government penal policies, especially in the United States. One of such economists was Gary Becker. He did not try to determine the causes of crime, but to identify the variables that structure the costs of and return to criminal activity to predict the incident of crime in future. Ehrlich (1973) extended Becker’s model by adding a theory of occupational choice. He assumes a utility function of the form:

Us=U (Xs, C);
C – amount of time devoted to consumption or non-market activity X – stock of a composite market good

Then he assumes that there are two states in S: arrest (a) or success (b):

Xᵃ=W¹+Wᵀ(T)+Wᴸ(L);
Xᵇ=W¹+Wᵀ(T)-F(T)+Wᴸ(L);
W¹ - initial asset
Wᵀ- earnings from illegal activities,
F – monetary equivalent of punishment
Wᴸ - earnings from legal activities
T – time spent in illegal activities
L – time in legal earning activities

Expected utility is given by:
E[U(Xs, C)] = (1-P) U(Xᵃ, C) + PU(Xᵇ,C)
P – probability of a successful crime. The objective is to maximize expected utility over T subject to a time constraint: Max E[U(Xs,C] subject to k=T+L+C
k-the total hours available to the individual

If C is fixes than the optimal allocation of working time between T and L is represented by: -(Wʹᵀ-Wʹᴸ)-(Wʹᵀ-F-Wʹᴸ)=PUʹ(Xᵃ)/[(1-P)Uʹ(Xᵇ)]; Derivatives are written by the prime symbol (ʹ). The left side of this equation is the slope of a production possibility curve of the composite X between two states of the world, when the right side shows the slope of an indifference curve. If T, L, and C≥0, the production possibility curve is defined between A and B. A is the point where the decision-maker specializes in illegal activities, B – where no illegal activities are pursued. C is the optimal allocation between L and T with a given indifference curve. Whether the equilibrium crime pays or does not pay in terms of the expected marginal returns is a reflection of a criminal attitude towards risk (if the criminal is a risk-avoider, risk-neutral or risk-preferrer).

2. The rise in private protection:

a) There is one of the potential explanations for declining crime rates. As early as 1968, Gary Becker (1968) observed that a variety of private and public actions such as employing guards, doormen, and accountants installation of locks, alarms and other detection devices, extending insurance coverage, avoiding parks and using taxes in place of walking or subways and so on attempt to reduce the number of crimes. Three decades later, private citizens in the USA have responded to the fear of crime by the increasing investments of time and money in crime prevention. It included improving locks and lighting, employing private security staff, patrolling and escort arrangements, building watching, increasing of private security by martial arts training and guns, etc. In 1970 private security employment was almost equal to public police personnel, and in 1998 it was estimated almost three times as many private security employees as public police (Benson, 1998). Studies of these private sector crime control activities are scarce, although a few researches exist on this topic. For instance, a book ‘More guns, less crimes’ written by John Lott that examines the effects of shall issue laws on violent crime across the United States. The main idea of the Lott’s book is that shall issue laws, which allow citizens to carry weapons,...
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