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The Behavioral Economics of Crime and Punishment

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  • Sanjit Dhami

    ()

  • Ali al-Nowaihi

    ()

Abstract

The Becker proposition (BP) is one of the founding pillars of the modern literature on Law and Economics. It states that it is optimal to impose the severest possible punishment (to maintain effective deterrence) at the lowest possible probability (to economize on enforcement costs). The BP is not consistent with the evidence. This is known as the Becker paradox. Using evidence from a wide range of phenomena we show that none of the proposed explanations for the Becker paradox are satisfactory. The BP has largely been considered within an expected utility framework. We clarify the Becker proposition and its welfare implications under expected utility. We show that BP also holds under rank dependent expected utility and cumulative prospect theory, the two main alternatives to expected utility. al-Nowaihi and Dhami (2010a) recently propose composite cumulative prospect theory that combines prospect theory with cumulative prospect theory. Under plausible conditions CCP is able to resolve the Becker paradox. Our article opens the way for incorporating non-expected utility theories into an economic analysis of criminal activity.

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Bibliographic Info

Paper provided by Department of Economics, University of Leicester in its series Discussion Papers in Economics with number 10/14.

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Date of creation: Apr 2010
Date of revision: Jul 2010
Handle: RePEc:lec:leecon:10/14

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Keywords: Behavioral economics; Illegal activity; Expected utility theory; Rank dependent expected utility; Prospect theory; Prelec and composite Prelec probability weighting functions; Composite cumulative prospect theory; Punishment functions;

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References

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  1. Ali al-Nowaihi & Sanjit Dhami, 2010. "Composite Prospect Theory: A proposal to combine ‘prospect theory’ and ‘cumulative prospect theory’," Discussion Papers in Economics, Department of Economics, University of Leicester 10/11, Department of Economics, University of Leicester.
  2. Ali al-Nowaihi & Ian Bradley & Sanjit Dhami, 2006. "The Utility Function Under Prospect Theory," Discussion Papers in Economics, Department of Economics, University of Leicester 06/15, Department of Economics, University of Leicester.
  3. Bar-Ilan, Avner & Sacerdote, Bruce, 2004. "The Response of Criminals and Noncriminals to Fines," Journal of Law and Economics, University of Chicago Press, University of Chicago Press, vol. 47(1), pages 1-17, April.
  4. Avner Bar-Ilan & Bruce Sacerdote, 2001. "The Response to Fines and Probability of Detection in a Series of Experiments," NBER Working Papers 8638, National Bureau of Economic Research, Inc.
  5. Ali al-Nowaihi & Sanjit Dhami, 2010. "Probability Weighting Functions," Discussion Papers in Economics, Department of Economics, University of Leicester 10/10, Department of Economics, University of Leicester.
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Cited by:
  1. Antonio Nicita & Matteo Rizzolli, 2013. "In Dubio Pro Reo. Behavioral explanations of pro-defendant bias in procedures," BEMPS - Bozen Economics & Management Paper Series, School of Economics and Management at the Free University of Bozen BEMPS04, School of Economics and Management at the Free University of Bozen.
  2. Pyne, Derek, 2012. "Deterrence: Increased enforcement versus harsher penalties," Economics Letters, Elsevier, Elsevier, vol. 117(3), pages 561-562.

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