Myopic deterrence policies and the instability of equilibria
We develop a general equilibrium model of crime in which honest workers face an effective tax rate on earnings, consisting of an exogenous income tax, used to pay for policing, and an endogenous crime tax, given by the proportion of their disposable income that is stolen. When there are two stable equilibria, the low crime equilibrium is welfare dominant and, furthermore, welfare is a decreasing function of the income tax rate. However, as the income tax rate is reduced, the degree of stability of the low crime equilibrium diminishes, until for sufficiently low tax rates, the low crime equilibrium is unstable with respect to any small, positive perturbation in the crime rate. Thus myopic maximization of social welfare exposes the economy to random shocks in the crime rate that can destroy the preferred, low crime equilibrium. We argue that this dilemma between economizing on resources used for deterrence and ensuring the stability of the most desirable equilibrium is a fundamental trade-off in the design of many institutions intended to control antisocial behavior, including rent-seeking, corruption and theft.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Edward L. Glaeser & Bruce Sacerdote & José A. Scheinkman, 1996.
"Crime and Social Interactions,"
The Quarterly Journal of Economics,
Oxford University Press, vol. 111(2), pages 507-548.
- Edward E. Glaeser & Bruce Sacerdote & Jose A. Scheinkman, 1995. "Crime and Social Interactions," Harvard Institute of Economic Research Working Papers 1738, Harvard - Institute of Economic Research.
- Edward L. Glaeser & Bruce Sacerdote & Jose A. Scheinkman, 1995. "Crime and Social Interactions," NBER Working Papers 5026, National Bureau of Economic Research, Inc.
- Fender, John, 1999. "A general equilibrium model of crime and punishment," Journal of Economic Behavior & Organization, Elsevier, vol. 39(4), pages 437-453, July.
- Gary S. Becker, 1974.
"Crime and Punishment: An Economic Approach,"
NBER Chapters,in: Essays in the Economics of Crime and Punishment, pages 1-54
National Bureau of Economic Research, Inc.
- Gary S. Becker, 1968. "Crime and Punishment: An Economic Approach," Journal of Political Economy, University of Chicago Press, vol. 76, pages 169-169.
- Sah, Raaj K, 1991. "Social Osmosis and Patterns of Crime," Journal of Political Economy, University of Chicago Press, vol. 99(6), pages 1272-1295, December.
- Sah, R.K., 1990. "Social Osmosis And Patterns Of Crime: A Dynamic Economic Analysis," Papers 609, Yale - Economic Growth Center.
- Anderson, David A, 1999. "The Aggregate Burden of Crime," Journal of Law and Economics, University of Chicago Press, vol. 42(2), pages 611-642, October.
- Buck, Andrew J. & Gross, Meir & Hakim, Simon & Weinblatt, J., 1983. "The deterrence hypothesis revisited," Regional Science and Urban Economics, Elsevier, vol. 13(4), pages 471-486, November.
- Persson, Mats & Siven, Claes-Henric, 2006. "Incentive and incarceration effects in a general equilibrium model of crime," Journal of Economic Behavior & Organization, Elsevier, vol. 59(2), pages 214-229, February.
- Persson, Mats & Siven, Claes-Henric, 2001. "Incentive and Incarceration Effects in a General Equilibrium Model of Crime," Research Papers in Economics 2001:6, Stockholm University, Department of Economics.
- Persson, Mats & Siven, Claes-Henric, 2001. "Incentive and Incarceration Effects in a General Equilibrium Model of Crime," Seminar Papers 696, Stockholm University, Institute for International Economic Studies.
- Andvig, Jens Chr. & Moene, Karl Ove, 1990. "How corruption may corrupt," Journal of Economic Behavior & Organization, Elsevier, vol. 13(1), pages 63-76, January.
- Andvig, J.C. & Ove Moene, K., 1988. "How Corruption May Corrupt," Memorandum 20/1988, Oslo University, Department of Economics.
- ., 1995. "Public finances and the cycle," Occasional Papers 4, The Public Enquiries Unit, HM Treasury.
- Eaton, B Curtis & White, William D, 1991. "The Distribution of Wealth and the Efficiency of Institutions," Economic Inquiry, Western Economic Association International, vol. 29(2), pages 336-350, April.
- Murphy, Kevin M & Shleifer, Andrei & Vishny, Robert W, 1993. "Why Is Rent-Seeking So Costly to Growth?," American Economic Review, American Economic Association, vol. 83(2), pages 409-414, May.
- Ross Cressman & Jean-Francois Wen & William Morrison, 1998. "On the Evolutionary Dynamics of Crime," Canadian Journal of Economics, Canadian Economics Association, vol. 31(5), pages 1101-1117, November.
- Hamermesh, Daniel S., 1999. "Crime and the Timing of Work," Journal of Urban Economics, Elsevier, vol. 45(2), pages 311-330, March.
- Furlong, William J., 1987. "A general equilibrium model of crime commission and prevention," Journal of Public Economics, Elsevier, vol. 34(1), pages 87-103, October.
- Friedman, Eric & Johnson, Simon & Kaufmann, Daniel & Zoido-Lobaton, Pablo, 2000. "Dodging the grabbing hand: the determinants of unofficial activity in 69 countries," Journal of Public Economics, Elsevier, vol. 76(3), pages 459-493, June. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:eee:jeborg:v:65:y:2008:i:3-4:p:609-624. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.