On the Optimality of Sealing Criminal Records and How It Relates to Adverse Selection, Productivity Reduction, and Stigma

Criminal convictions result in expected losses due to stigmatization. Among other things, the magnitude of these losses depends on the convict's future expected earnings. People who face larger wage reductions due to convictions suffer more than others from stigmatization. Intuition suggests that this type of unequal stigmatization may lead to over- and underdeterrence problems. This intuitive deduction ignores the possibility that indirect harms from crime may be related to a person's wage and, therefore, the stigma attached to conviction. I show that if wage cuts reflect employers' efforts to match the reduction in convicts' productivity caused by their criminal activity, they cannot cause overdeterrence. However, overdeterrence is observed if stigmatization is caused by simple adverse selection problems. As noted in previous work, overdeterrence can be mitigated by allowing offenders to seal their criminal records; thus, the value of these policies depends on the source of stigmatization.