Matthew Doyle

INTEGRATING MARKET ALTERNATIVES INTO THE ECONOMIC THEORY OF OPTIMAL DETERRENCE

Leading economic models of crime assume that potential criminals achieve their ends by criminal means or not at all. We develop a framework in which potential criminals can also attain their objectives through voluntary trade. Our framework helps explain several features of the legal system that have proven to be problematic for the canonical approach: why optimal sanctions should be increasing in an individuals criminal history, and why necessity may be a partial defense in some situations. Finally, the inclusion of a voluntary trade option makes the maximization of a utilitarian welfare function identical to minimizing the costs of crime, implying that a long‐standing controversy in the literature is, in part, an artifact of the assumption that criminals face a binary choice set.

Social Welfare and the Benefits to Crime

There exists a large literature on the optimal deterrence of crime. Within the literature, however, there exists a controversy over what the appropriate criterion to determine optimality should be. While the most popular method is that of maximization of a utilitarian welfare function, another criterion sometimes used is that of cost minimization. The controversy stems from the question of whether the benefits to crime enjoyed by criminals ought to be included in the welfare analysis. This paper argues that the controversy is an artifact of the fact that the standard model restricts a potential criminals choice to one of committing a crime or doing nothing. We show that when potential criminals are given the additional choice of achieving their ends through voluntary methods that maximizing the sum of utilities is in fact equivalent to minimizing the costs of crime. The model developed also provides explanations for sanctions that increase in ones criminal history and why necessity may be a partial defense.

Informational Externalities, Strategic Delay, and Optimal Investment Subsidies

This paper examines optimal government policy when private investment generates information, but investors cannot internalize the informational value their actions have to others. Equilibrium exhibits inefficient delay, as investors adopt a wait-and-see approach. The government can alter incentives via an investment subsidy, but complications arise, since future subsidies may induce investors to disregard current policy initiatives. The paper shows that the government achieves its desired outcome only when the the investment subsidy is financed by a non-distortionary, lump-sum tax. When taxation is distortionary, the government faces a time inconsistency problem that may prevent effective policy.