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Session 9 – Economics of crime (LAW4006)
This document contains the notes taken before (based on the literature) and during the tutorial. Good Luck!
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Session 9 – Economics of crimeGeneral information
Contents of this tutorial:
Why Criminal Law?
Economic theory of crime
Optimal Sanctions
Corporate Criminality
Assignment 9.1: Characteristics of criminal law
What are the distinguishing features of criminal law? What is mens rea?
Features of Criminal Law
Criminal liability established ex ante
Criminal intent (‘mens rea’)
Plaintiff is the state
High standard of proof
Sanctions imposed by impartial judge
Non-monetary sanctions are possible
Reducing error costs!
Law and Economics
Ex ante perspective
Welfare maximization
Rationality
Efficiency
Objectives of Criminal Law
L&E: increasing the cost of crime (a potential injurer will not commit crime if cost > benefit
Another way of controlling harm
o Internalizing externalities
Incapacitation, rehabilitation, retribution
Moral implications
Assignment 9.2: Why criminal law?
Why may tort law be insufficient to prevent/deter undesirable behavior? What are other
(economic and non-economic) arguments for using criminal law?
Why is public enforcement needed?
1) Liability rules would not provide a sufficiently deterrent effect
a. Environmental pollution causes damage to non-identifiable victims: community suffers
harm;
b. Victims can not use liability rules given problems of causation;
c. There may be a long time lapse between moment of wrongdoing and moment damage
occurs, causing problems of proof and causation.
, 2) The application of private law is sometimes not possible since there may not always be a
solvent injurer who is able to compensate the damage. In reality, enterprises can create
environmental harm of which the amount is substantially higher than their wealth.
3) The probability of detection with environmental pollution may be lower than 100%.
o The problem with private law is that a polluter is only forced to pay damages equal to the
harm suffered by the victim. Liability rules can provide optimal incentives to take efficient
care measures aiming at prevention.
However, from the moment there is a probability that the injurer can escape the
law suit and that the probability he will have to compensate the damage is lower
than 100 %, an underdeterrence problem arises.
Example of the turtle
Tourist wants to import a turtle with a value of 1000. The fine of importing
illegally would be 10.000. The tourist can hide the turtle in his luggage and reduce
the chances of detection to 10%. With his excellent lawyer he can reduce the
chances of being convicted to 50%. The expected costs would be: 10% (detection)
x 50% (probability conviction) x 10.000 (fine) = 500. The advantage to the tourist
would be 1000. A rational criminal would decide to commit the crime since the
expected benefits are higher than the expected costs.
o The sanction should thus be higher in order to outweigh the low probability of detection.
This can not be achieved with tort law since tort law only forces the injurer to
compensate the victim the amount of the damage suffered and not more.
Other limits of Tort Law
Insufficient information
Legal costs
Insolvency
Need for higher sanctions
Imperfect compensation
How do we calculate the loss of an arm?
Pain and suffering
Arguments against Criminal law
Criminal law as last resort
High costs of criminal law
Proportionality
(unproportionate) stigmatizing effects
‘overdeterrence’?
Error costs
Not only the guilty has to be punished, but it is also important that the innocent must not be
punished
Formalized procedure with high burden of proof
Reducing error costs
Assignment 9.3: Standard of proof
In common law countries, a prosecutor in criminal proceedings has to prove ‘beyond reasonable
doubt’ that a crime was committed. Why?
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