Economics of crime and punishment

Essay by cupcrazyUniversity, Bachelor'sB, September 2006

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The recent arrest of the so called Bali Nine for allegedly smuggling heroin into Australia (Powell & Carroll 2005, online) has caused controversy and created rifts between Australian and Indonesian relations. Resulting to a death penalty through firing squad if found guilty, what instigated these people to participate in this illegal activity? There are three approaches dominate the theories of crime - psychological, sociological and economic (Fadaei-Tehrani & Green 2002). As for the Bali Nine, we will demonstrate that an individual's lack of money is not the prime factor that cause acts of crime, as there are other factors behind these acts (Rubenstein 1995). The core of this essay is to discuss the economic approach to crime and examine whether economic theories can be applied to society in order to reduce crimes. We will use the subject of illegal drugs in Australia as an example of crime to illustrate our arguments.

Gary Becker was the first economist to apply economic theory to analyze criminal activity (Rubenstein 1995). An economic approach would take into account the expected costs against expected benefits of committing a particular crime, assuming criminals are rational persons acting in their own self interest. Criminals view the cost of crime in two parts: the opportunity cost of committing a crime and the time expected to be jailed because of their activity.

Before committing a crime, criminals analyze its opportunity cost. The opportunity cost is the income foregone by devoting time to criminal activities. In other words, it is the rate of return on legal market activity (Rubenstein 1995). The opportunity cost of an individual committing a crime is determined by various factors in the economy (Rubenstein 1995). One factor is the unemployment rate given that it determines the chances of employment. The levels of real wages as...