What is the purpose of criminal punishment? As a first approximation, the answer seems straightforward: namely, to make those convicted of crimes pay for the harm they have done to their victims, and concomitantly to discourage others from committing the same harmful acts in the future. These twin rationales, which we might loosely call corrective justice (or retribution), and deterrence, respectively, would seem to liken punishment to a price and, by extension, criminal acts to economic exchanges, which is in fact the perspective that forms the foundation for the economic approach to crime. According to this paradigm, party A receives (or takes) something of value from party B, and A is then required (by the forceful intervention of the state) to pay the cost of the thing that he has taken. In an exchange of this sort, the price serves both to deter some transactions (those for which the gain perceived by A is less than the price he will have to pay), and to allow others to go forward (those for which the reverse is true). In the latter case, the price compensates society (and party B indirectly) for loss of the good in question.
When framing a criminal act in this way, however, the “price” analogy will seem to many to have been stretched a bit too far because, unlike a true market exchange, a crime is by its very nature non-consensual; that is, the victim of a crime, in contrast to the supplier of a good or service, is not a legally willing participant in the “transaction.” For this reason, the punishment-as-price metaphor, as I will call it, would seem to “legitimize” the criminal act, which is clearly not consistent with the popular conception of the role of criminal punishment. Indeed, for most people punishment is specifically aimed at de-legitimizing the criminal act as a way of discouraging it altogether, or at least of expressing society’s strong disapproval of it. In this view, it would seem to be more appropriate to characterize criminal punishment as a penalty rather than as a price, perhaps reflecting a primitive urge for vengeance or retaliation rather than serving as compensation.
The preceding discussion raises the question of what we can learn about the criminal justice system by viewing it from an economic perspective, which clearly has as its core the idea of “punishment-as-price.” Indeed, one of the themes of this book will be to examine how far this metaphor can carry us, both in terms of thinking about how criminal justice policy is actually implemented, and in revealing what the goals are that society is trying to pursue by this mechanism.
A necessary first step in this exercise is to think about the justifications that are most commonly offered for imposing criminal punishment. These include the two already mentioned, deterrence and retribution, to which we must also add rehabilitation and incapacitation.1 The economic approach to punishment places a priority on deterrence, but we shall argue that an economic perspective on the other functions can be offered as well. In addition, we will see that the various rationales are not mutually exclusive categories in the sense that, in different circumstances, criminal punishment can be justified as pursuing all or a subset of these objectives. In other words, the economic approach to crime need not be one-dimensional but can accommodate a multi-faceted approach very much in the spirit of Hart (1982, p. 3).
As noted, the economic view of criminal punishment likens crime to a market transaction between the offender and a victim, notwithstanding the troubling recognition that the crime victim is an unwilling participant. Still, it is useful to think of the threatened punishment as sending a signal to would-be offenders of the cost of contemplated acts with the belief that it can thereby serve as an optimal deterrent. It is important to recognize at the outset, however, that optimal deterrence does not mean complete deterrence. Rather, it means that some acts will be discouraged because the price exceeds the offender’s gain, while others will be committed because the reverse is true. In the latter case, the offender commits the act and then pays the price in the same way that a buyer pays for the goods or services he or she obtains in a market transaction. In a true market setting, the result of a completed transaction is that the buyer obtains a positive net benefit (the consumer surplus), while the seller is fully reimbursed for his or her costs, possibly with some profit (producer surplus) leftover. In theory, this same logic applies to a criminal transaction.
However, in contrast to the market setting, the “price” of a crime is not assessed by the seller (victim), nor is it directly “paid” to him or her. Rather, it is set and collected by the government, ostensibly acting as an agent of the victim and of society in general. In addition, the price is not a mere transfer payment from the buyer to the seller, as is true of a market price, because it is costly to impose, even if in the form of a monetary fine, precisely because the offender does not willingly pay it but must be coerced into doing so. And if punishment is prison, it is also costly to carry it out. Thus, the punishment process involves the expenditure of resources, first to apprehend the offender and then to establish his or her guilt and possibly to impose punishment (depending on its form), all of which involve very costly procedures. And then, once an offender is convicted, the assessed “payment” is not transferred to the victim as compensation for the harm he or she has incurred (as would be true of a market price). This is necessarily true when the payment takes a non-monetary form, but even when punishment is a fine, the revenue is not handed over to victims.2 At most, therefore, the latter may derive some indirect benefit or satisfaction from the knowledge that the offender was caught and punished. Whether or not this provides sufficient “compensation” for the harm the victim has suffered is dubious—probably it depends on the form and magnitude of the punishment.
Though significant, these various departures of a “criminal transaction” from an ordinary market transaction do not, I will argue, detract from the insights that can be gained by maintaining the punishment-as-price metaphor, at least as regards the role of punishment as a deterrent. As long as the anticipated punishment accurately reflects the harm of a criminal act to would-be perpetrators, the latter, assuming they are acting rationally, will only commit “efficient crimes,” defined to be those for which the benefit exceeds the perceived cost. This is the basis of optimal deterrence as embodied in the economic theory of crime, as will be elaborated on in the next chapter.
As for the enforcement of the criminal penalties, an implicit assumption in the economic approach to crime is that the relevant governmental authority (variously embodied by the legislature, the police, prosecutors, and courts) stands ready to impose the punishment once an offender commits the illegal act. Another theme of this book will be that this is not always a reasonable assumption, precisely because the required processes are costly, and because they involve various decision makers operating at different points in the punishment process and with different and possibly conflicting objectives.
Before providing an illustration of this last point, it is worth noting why no such concerns arise in a true market setting. It is principally because the seller of the good or service, as a willing participant in the transaction, will not part with the demanded item or provide the requested service until payment has either been tendered or credibly promised by the buyer. Indeed, in most ordinary transactions, the exchange of goods or services for payment happens instantaneously. In the criminal context, in contrast, we have noted that the “seller” (victim) is neither a willing participant nor the ultimate recipient of the offender’s “payment.” Instead, the government both assesses and collects the punishment from the offender after the act has been committed, and the process of doing so is costly.
In the remainder of this chapter, we demonstrate, in a very simple law-enforcement “game,” the consequences of this difference between criminal and market transactions as it relates to the potential credibility problem with respect to the imposition of punishment after the fact. Although highly stylized, the example will set the stage for the examination of more realistic enforcement regimes in later chapters. The point here is simply to illustrate the fundamental nature of the problem, which I will term the “paradox of punishment.”
The Crime-and-Punishment Game
Consider a simple game that depicts the interaction between a potential criminal offender and a third-party enforcer (the government). Suppose that the offender expects to derive a monetary gain of $150 from committing the act in question. Further, suppose that act is deemed to be a crime precisely because it is socially undesirable in the sense that it imposes a cost on society of $200. (For purposes of the example, the particular nature of the crime and the identity of the victim or victims are immaterial.) Let the dollar cost to the offender of the threatened sanction, whether in the form of a fine or imprisonment, be s, so that he will only commit the crime if $150 > s. (We will assume that when indifferent, the offender refrains from committing the act.) Let us also suppose that the administrative cost of imposing s is just s, the same as the cost borne by the offender. This cost includes the costs of apprehension and adjudication of guilt, and, in the case of imprisonment, the cost of detention before and after conviction. Thus, any sanction s < 150 that does not deter the offender will cost society s to impose, resulting in a total social cost of $200 + s, which is the sum of the harm from the crime plus the cost of punishment. However, if the enforcer sets s ≥ 150, the offender will be deterred and hence no social costs, from either crime or punishment, will actually be incurred.3
Given these assumptions, let us now imagine the “game” played between a would-be offender and the enforcer, assuming that the offender acts based purely on a comparison of costs and benefits and the enforcer seeks to minimize overall costs (harm from crime plus punishment costs). The available strategies for the offender are “Commit” and “Not commit,” while the strategy for the enforcer consists of choosing the magnitude of the sanction s. While any non-negative s is possible, we can focus on two possibilities. The first involves setting s = 0, a strategy that we will call “Not punish”; and the second involves setting s = $150, a strategy we will call “Punish.” Note that the former minimizes punishment costs (i.e., it involves no punishment), while the latter is the lowest punishment cost that just deters the crime.4
Initially, we will treat this as a simultaneous move game between the two parties, meaning that the players must choose their strategies simultaneously and in ignorance of what the other party is doing.5 We can think of both players as committing to a particular strategy before they have a chance to observe the strategy choice of the other party. Obviously, this assumption is overly simplistic and will be relaxed later, but at this poi...