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Willingness to Pay to Reduce White-Collar and Corporate Crime

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  • Cohen, Mark A.

Abstract

Consumer protection and financial regulatory agencies such as the Federal Trade Commission (FTC), the Securities and Exchange Commission (SEC), and the Consumer Financial Protection Bureau (CFPB) regulate various types of consumer, investor and financial frauds. Whether required or not, rulemaking proceedings oftentimes include some form of benefit-cost analysis. Thus, the benefits of proposed regulations – whether fully quantified or not – are an increasingly important component of rulemaking decisions. Anecdotal evidence suggests that the impact on victims in some cases includes significant time and financial hardships and even pain, suffering, and reduced quality of life. Further, the existence of these offenses causes nonvictims to take costly precautionary behavior and might even inhibit legitimate business activities. Yet, little is known about the true costs of consumer and financial crimes other than the out-of-pocket monetary losses incurred by victims. To the extent society wishes to optimally deter such crimes, without better data on nonmonetary costs, any benefit-cost analyses of criminal justice or prevention programs designed to reduce these crimes will inevitably underestimate program benefits. This paper provides an initial framework and empirical estimates of the willingness to pay (WTP) to reduce four types of white-collar and corporate offenses – consumer fraud, financial fraud, corporate crime, and corporate financial crime. Utilizing a contingent valuation survey approach that has been used to estimate the cost of street crimes, the average WTP for a 10% reduction in each of these four offenses is estimated to range between $35 and $85 per household. In the case of consumer fraud and financial fraud, where estimates of prevalence are available, this translates into a WTP of $1200 per consumer fraud and $12,000 for financial fraud. In contrast, the out-of-pocket costs to victims of consumer fraud have been estimated to average about $100, and about $200 to $250 for various types of financial frauds. These figures also compare favorably to the WTP for a reduced household burglary of $19,000.

Suggested Citation

  • Cohen, Mark A., 2015. "Willingness to Pay to Reduce White-Collar and Corporate Crime," Journal of Benefit-Cost Analysis, Cambridge University Press, vol. 6(2), pages 305-324, July.
  • Handle: RePEc:cup:jbcoan:v:6:y:2015:i:02:p:305-324_00
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    Cited by:

    1. Mark A. Cohen & David P. Farrington, 2021. "Appropriate Measurement And Use Of “Costs Of Crime” In Policy Analysis: Benefit‐Cost Analysis Of Criminal Justice Policies Has Come Of Age," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 40(1), pages 284-293, January.
    2. Gibson, Matthew, 2021. "Employer Market Power in Silicon Valley," IZA Discussion Papers 14843, Institute of Labor Economics (IZA).
    3. Francesco Ramponi & Simon Walker & Susan Griffin & Steve Parrott & Colin Drummond & Paolo Deluca & Simon Coulton & Mona Kanaan & Gerry Richardson, 2021. "Cost‐effectiveness analysis of public health interventions with impacts on health and criminal justice: An applied cross‐sectoral analysis of an alcohol misuse intervention," Health Economics, John Wiley & Sons, Ltd., vol. 30(5), pages 972-988, May.

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