Economics of Crime – Key Trends in Crime

Economics of Crime



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Crime has emerged as a very intrinsically complex phenomenon to measure. According to the National Statistician, “some crime goes unreported or is under-reported; victims can be unaware of some crimes such as fraud; and there are crimes where there may be no direct victims” (National Statistician 2011, p. 7). Although the statistical computation of crime aids in the public understanding of crime, the complex nature of the crime makes it hard to account for the total crime in England and Wales (National Statistician 2011). There also appears to be a difference in terms of the public’s perception of what constitutes a ‘crime’, and the provision of the statute regarding its definition (Bradford, Stanko & Jackson 2009). This too, adds to the complexity of measuring crime. Various discussions on crime in the popular media, along with public perceptions regarding the same, appear to depict crime as a growing problem in England and Wales (Joyce 2016). However, statistics point towards the very opposite of this assertion namely, that crime rates have actually reduced, based on recorded crimes by the police and the findings of the British Crime Survey (Draca 2013).  Over the past few years, England and Wales have witnessed a considerable decline in the police force. This, coupled with a weakened economy, is indicative of an increase in crime levels (Home Office 2011). However, a review of key trends indicates that this is not the case. The premise of this essay, therefore, is to examine key trends in crime in England and Wales, along with the positive and negative incentives for the crime. The market model for crime shall also be examined, along with policies that help to reduce crime.

Key Trends

The latest British Crime Survey (BCS) reveals a drop in crime recorded in England and Wales in successive years (Home Office 2011). In particular, property crime has reduced by nearly 40-50% for a decade between the late 1990s to the late 2000s. Although changes in record-keeping affected the ability to identify trends in violent crime over time, some very obvious drops in crime were still evident in the late 2000s. The latest figures reveal that some 6.8 million incidents of crime were reported up to March 2015. This represented a 7% drop in crime against resident adults and households compared to a year earlier when incidents of crime were estimated at 7.3 million (Office for National Statistics 2015).  In 2010/11, the BCS revealed that crime levels stood at 9.6 million offences, which was a slight drop compared to the 9.5 million offences recorded a year earlier (Home Office 2011).  These trends point towards the lowest levels of crime to have been reported since 1981 when the CSEW (Crime Survey for England & Wales) was introduced. Crime incidents peaked in 1995, but have been on a downward trend ever since (Office for National Statistics 2015).  Additionally, police recorded crime pointed towards a reduction in crime by four percent between 2010/11 and 2009/11, at 4.2 million offences and 4.3 million offences, respectively (Home Office 2011).

Between 2009/10 and 2010/11, violent crime reported in England and Wales increased by 6 percent, but this is not statistically significant. The 2010/11 BCS revealed a 47 percent reduction in levels of violence (Office for National Statistics 2015) in comparison with the peak levels reported in 1995 (Flatley et al. 2010). In April 2002, the NCRS (National Crime Recording Standard) was introduced, and since then, there has been a significant rise in the number of less serious crimes recorded by the police. Over the past few years, there has been a decline in recorded violence against individuals. In 2010/11, a total of 642 homicides were recorded, compared to 618 recorded in 2009/10. The number of homicides recorded has been on the decline in recent years (Smith et al. 2011).

Trends in key positive and negative incentives

Crime has persisted throughout human history (Witte & Witt 2001), and the regularities associated with it have been the centre of focus of economists as they seek to establish what motivates people to engage in such an illegal activity (Ehrilich 1996). Most studies seeking to establish a relationship between crime and economic conditions are indebted to the seminal work of Gary Becker. His pioneering microeconomic theory of crime identified individuals as making a rational decision to partake in crime and is driven by two forms of incentives: positive incentives and negative incentives (Marshal 2015).  Positive incentives refer to the “opportunities available in the legitimate economy” (p. 111). Such opportunities are often computed by the existing wage rates and unemployment rates. In this case, higher wages and lower unemployment results in less crime, and vice-versa. On the other hand, negative incentives “are the costs of participating in the illegitimate economy” (Marshal 2015, p. 111). The common measures include conviction rates and arrests, as well as average prison sentences. In this case, higher rates of arrest and longer prison terms should result in reduced crime rates.

Market model of crime

In Ehrlich’s market model, “the supply side of the market is determined by the balance between costs of prevention and costs of risk of crime itself” (Czabanski 2008, p. 71). Individuals are compelled to put up with crime as the alternative (that is, spending more resources on prisons and the police) is far much worse. Ehrlich assumes that the equilibrium flow of offenses is due to the link between derived or direct demand for offences (via self-protection), the total supply of offences, as well as maximum public enforcement.  Ehrlich’s “market model” of crime hinges on five fundamental assumptions which are in turn based on economic theory. To begin with, the model assumes that potential victims, offenders, law enforcement authorities, and those who purchase services and goods illegally, all behave in a manner that fulfills the optimizing laws of behaviour. These individuals form what Ehrlich refers to as a “market model” that provides researchers with a detailed framework with which to study the issue.

The model hinges on the supposition that offenders, on account of their being part of the human race, are responsive to incentives (Ehrlich 1996). Secondly, the individuals form expectations regarding relative illegitimate and legitimate opportunities, as well as certainty and severity of punishment, on the basis of available information, for purposes of facilitating the liking of objective and subjective expectations. Thirdly, the model assumes that preferences for crime and safety for crime are distributed in a stable manner in the population. Fourthly, because crime is by definition an external economy, while public law enforcement acts as a perfect sample of a non-exclusionary good it follows then that the goal of law enforcement is largely assumed to involve maximisation of the people’s welfare.   Finally, an aggregation of specifications regarding the behaviour of all involved parties safeguards clearly shown equilibria.

Ehrlich’s model of crime is thus a standard model of decision-making, in which a person makes a choice on whether they will engage in legal activity or criminal activity, going by the anticipated utility from the choices made (Brand & Price 2000). A key assumption of this economic model of crime is that an individual’s decision to partake in crime hinges on an optimizing of their response to incentives.

Positive and Negative Incentives to Crime

An individual’s decision to partake in crime is usually motivated by the ensuring gains and costs from such activity (Brand & Price 2000). They entail the anticipated illegitimate payoff for every offence; the direct costs that offenders have to carry in terms of escaping punishment and self-protection, as they try to get hold of the loot; the wage rate of other substitute legitimate activities that the individual might engage in; the likelihood of the person getting caught and incarcerated; the likely penalty the person is to receive in case they are convicted; and an individual’s distaste or taste for crime. This latter factor hinges on an individual’s proclivity for violence, moral values, as well as preference for risk (Karn 2010).

Equal changes in positive and negative incentives yield similar changes in the anticipated net gains from crime, and hence a similar total deterrent impact on the offender.  Such a conclusion does not always hold, especially if we take into account the non-neutral attitudes of offenders towards risk (Machin & Meghir 2004). It follows then that a 1 percent rise in the likelihood of the offender being pushed once caught will result in an even greater deterrent effect that a 1 percent rise in the level of severity of the punishment. This is true for an offender who prefers to take risks. In the case of a risk avoider, the opposite is true.

In the event that offenders partake in crime as a side activity or as a part-time activity, there is a hypothetical likelihood that positive and negative incentives might be ineffective at a personal level owing to conflicting substitution and income effects. For instance, in case offenders prefer risk, the possibility of losing potential income if caught might compel them to dedicate more time to crime. Faced with a lower income, a person who prefers to take risks is also more likely to take a risk on the cost of punishment if there is the likelihood that this could yield higher criminal returns (Ehrlich 1996). This form of ambiguity is more applicable to the impacts of negative incentives in case the person dedicated more time to seeking inferior goods. While such ambiguities could be vital at a personal level, they may not be evident at the market level since variations in illegitimate incentives “do not generate income effects for marginal entrants” (Ehrlich 1996, p. 53).

The market for offenses is also affected by the market forces of supply and demand. For instance, exogenous change incentives like a rise in the severity and likelihood of fines or a rise in an individual’s average legitimate wage could reduce an individual’s net gain from the crime. This in turn reduces crime levels since engaging in such an activity is no longer cost-effective (Haberfeld & Cerrah 2008).  However, these are general incentives that largely operate at market levels, as opposed to individual levels. However, specific incentives like rehabilitation programs and incapacitative penalties are often directed at convicted offenders. The effectiveness of these specific incentives in crime prevention is hindered by the small group of offenders who are caught and punished, along with the duration of their prison sentence, as well as the smaller percentage of offenders released from prison who remain rehabilitated over the duration of their working.

The successful elimination of rehabilitated or incarcerated offenders from the illegitimate market shifts the supply of offences toward the left. This is because the vacuum left by “removed” offenders is filled by an intensified illegal activity or new entrants (Ehrlich 1996). Such incapacitative penalties as imprisonment result in an incapacitated effect on offenders who have been imprisoned and have a deterrent effect on offenders who are yet to be caught. Conversely, rehabilitation programs while they could be successful in protecting released offenders from reoffending rarely have a deterrent effect on criminals or would-be criminals. Actually, the work subsidy or training common in successful job-oriented programs has been shown to result in a counter-deterrent effect on criminal activity since it minimises the likely penalties that the would-be-offenders can incur.

On the other hand, imprisonment and incapacitation with no focus on rehabilitation could enhance the likelihood of relapse of released offenders into crime owing to the informal training received through their association with other offenders who have been convicted (Ehrlich 1996). What this appears to suggest is that even specific incentives could be quite effective in reducing crime at the individual level. The market model is indicative of considerable restriction of their likely effectiveness in minimising a collection of various crimes. On the same note, while general incentives are likely to result in a weak impact at a personal level, they could be very effective at the market level owing to their effect on the exit and entry of marginal offenders.

Policies to reduce crime

Increased minimum wage

Increasing the minimum wage acts as a boost to individuals in the labour market so that those who might have been included to consider engaging in crime turn away from it. This is because the increase in wages acts as a better incentive to shun crime than the benefits to be had in engaging in crime (Machin & Meghir 2004). In this case, we assume that there will be no shift in other important factors in establishing crime. A review of the relationship between the labour market on crime shows that in areas where the minimum wage has been introduced the effect of wages on crime rates varies from one area to another. The findings also point towards the need to moderate crime in areas characterised by a relatively higher number of workers on low wages prior to the introduction of the minimum wage. Simple economic models point to the fact that as the labour market opportunities reduce, this effectively alters the incentives for people to partake in illegitimate or legitimate activities. Some findings have actually shown a considerable correlation between levels of unemployment and crime (for example, Reilly & Will 1996), although the relationships with alterations in labour market opportunities as assessed by wages have not been explored in-depth. This, even as rising crime levels has received considerable attention from various social science disciplines in recent decades.

Draca (2013) reports that unemployment is an important determinant of crime in the same way wages are. A key take from this statement that is that wages act as an indicator of not just the labour market, but also give insights into the ‘outside opportunities’ of individuals who may be inclined to partake in criminal activities.  Machin and Meghir (2004) in their CEP study demonstrated the value of low-wage labour market.  The researchers established that among the 25th percentile of the lowest paid workers who received higher wages than the average, these experienced 0.8% less crime in comparison with the others. As such, such policies as the minimum wages could result in a positive impact on not only crime rates, but also the living standards.

Increase spending on police

Increased spending on the police force has also been shown to reduce crime levels. This is especially the case where such spending is associated with the introduction of novel policing strategies. For example, the Street Crime Initiative (SCI), a programme that was introduced in England and Wales in 2002, involves allocating additional resources to the police force in certain selected areas, while other areas did not receive any extra police resources (Machin & Marie 2011). The additional resources were meant to assist the police in reducing street crime. Estimates from various empirical studies point towards a considerable reduction in robberies where the SCI programme had been initiated, in comparison with areas where the SCI programme had not been rolled out. This is a clear indication that increasing the resources available to the police to fight crime actually helps to reduce crime (Machin & Olivier 2005).  One year following the introduction of the SCI, it had helped to avoid over 10,000 robberies. The strategy was largely successful because police resources were directed at the most risky places and people following the identification of crime hotspots.

The concentration of resources to areas with serious and prolific offenders and a higher likelihood of repeat victimisation leads to reduced crime rates. It is not enough to concentrate police resources on crime hotspots; the right tactics should also be adopted (Machin, Marie & Vujic 2011). In this case, additional police resources should be combined with social measures, sensitive law enforcement, and active participation of the community and attempts to prevent repeat victimisation (Karn 2013). Towards this end, problem-oriented policing and intelligence policing would go a long way in enhancing the effective allocation of resources to the police force with the overall objective of reducing crime. 

 What are the potential consequences of the crime policy?

            The comparative attractiveness of definite forms of crime control cannot be established by their comparative effectiveness alone; it will also be determined by their comparative social costs as well as by the welfare “the welfare criteria invoked as a justification for public law enforcements” (Ehrlich 1996, p. 63). For instance, in case the welfare goal is to increase social income, this is likely to push the social cost deterrent sanctions like fines closer to zero. This is because fines are not tied down by the deadweight costs linked to probation, house arrests, and imprisonments, among other intermediate forms of punishment. Accordingly, an optimal enforcement strategy would entail increasing these kinds of fines to the optimum to their optimum levels, and at the same time, reducing the likelihood of getting caught and convinced to the minimal feasible level. However, it may be necessary to continue using intermediate punishments and imprisonment and fines for crimes where the additional “added incapacitation value of imprisonment justifies its added costs’” (Ehrlishc 1996, p. 63)

The market model suggests that reduced disparities in the manner in which earning opportunities are distributed in legitimate markets act as deterrence to offenders on the margin. It does this by limiting their divergent earnings for partaking in criminal activity (Machin & Marie 2005). This seems to justify the existence of public policies whose goal is to equalise employment and educational opportunities as a partial means of minimising crimes committed. Nonetheless, given that these policies may not be directed at potential or actual offenders in the same way conventional law enforcement does, this form of crime control could lead to high social costs.

What are the required conditions for a continued fall in crime rates as a result of this policy?

If at all we are to continue experiencing a fall in crime rates owing to the aforementioned policies, it is important to ensure the sustenance of the various programs that have been incepted, such as the SCI, through continued funding (Brain 2010). In addition, the wages earned must be a better incentive to avoid illegitimate activities than the gains to be had by engaging in criminal activities.

What other factors may explain falling crime?

The fall in crime rates over time cannot be attributed to a single factor alone but is rather due to an association of several sets of factors. Various factors have been developed in a bid to explain the consistent falling rates of crime witnessed in the UK since the mid-1990s, and the most notable ones include social change, improved property security, use of CCTV, and economic influences (Flanagan 2008), as well as other local initiatives to reduce crime rates.


Crime has proven to be a rather complex phenomenon both in terms of definition and computation, something that has made it hard for statisticians to calculate the total crime committed in the UK and Wales. Nonetheless, since the BCS was incepted, this has made it easier to categorise the various forms of crime reported to the police and those reported by individuals in surveys. By and large, crime in England and Wales has been at its lowest levels in over two decades, and this is largely attributed to the adoption of key policies to reduce crime such as the SCI.  The introduction of the minimum wage has also seen crime levels reduce significantly, according to the findings of empirical studies. Other facts have also contributed to the falling crime levels, including the use of CCTV, and social change, among others.


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