Academic journal article Economic Inquiry

Criminal Deterrence in the Reduced Form: A New Perspective on Ehrlich's Seminal Study

Academic journal article Economic Inquiry

Criminal Deterrence in the Reduced Form: A New Perspective on Ehrlich's Seminal Study

Article excerpt

I. INTRODUCTION

Perhaps the best known and most influential econometric analysis of the deterrent effect of criminal penalties is Isaac Ehrlich's [1973] "Participation in Illegitimate Activities: A Theoretical and Empirical Analysis." He reported large and significant marginal deterrent effects of penalties for a wide range of crimes. Ehrlich's work was heavily criticized on methodological grounds, and many subsequent studies have contradicted his results, while still others have not.(1) Nonetheless, Ehrlich's work remains an important hallmark in the study of criminal deterrence.

This note is motivated by recent research that indicates that penalties may have indirect consequences that could reduce their deterrent effect. Higher penalties could, for instance, encourage a criminal to spend more effort avoiding detection and prosecution (Malik [1990], and Snyder [1990]). For instance, as Lott [1987; 1992] shows, higher penalties may increase the amount of money criminals spend on legal defense.(2) This means that higher penalties could reduce the probability of apprehension and conviction. In addition, a feature of the legal system may generate another way for higher penalties to reduce the probability of punishment. This feature is that judges and juries must apply the reasonable doubt test to their decision to convict a defendant. Assume that jurors establish the level of doubt which is "reasonable" by finding the threshold that will minimize expected (social) losses. If juries, like criminals, have a forecast of likely penalties, then as the expected penalty rises, the cost of an incorrect conviction also rises. This means the juror's threshold level of reasonable doubt will rise as well. The effect is to reduce the probability that a given defendant will be convicted (Andreoni [1991]). If either the "avoidance" or the "reasonable doubt" effect is significant, then this will mitigate the direct deterrent effect of penalties on crime rates.

Reexamining Ehrlich's work we see that his prime objective was to identify a single equation in a three-equation simultaneous equations system, that being the equation predicting crime rates. He found significant negative coefficients on penalties, which he took as evidence for his theoretical model of criminal behavior in which criminals could be deterred by higher penalties. If more recent theories are correct in claiming that higher penalties may also decrease the chance of conviction, then Ehrlich's estimation of the single equation will not tell a complete story. In particular, we must estimate a reduced-form model which will capture both the direct and indirect effects of penalties on crime rates.

This paper will address these questions using Ehrlich's original data. Replicating Ehrlich's regressions, we find strong direct deterrent effects of penalties. However, we also find that increased penalties have a significant negative affect on the probability of conviction, as predicted by the theoretical studies. We combine these effects by examining the reduced-form equations for both crime rates and probabilities of conviction. We find that the total effect of penalties on crime rates is approximately zero for all twelve crime categories considered but that the effects of penalties on probabilities of conviction remain negative and significant in the reduced-form equations.

This note allows for two general conclusions. First, we provide some evidence for theoretical models that predict that penalties may reduce the probability that criminals will be convicted. Second, and more importantly, despite one's views on the many widely discussed methodological issues surrounding Ehrlich's seminal work, when generalized to account for possibilities that higher penalties may reduce the probability of conviction, his data generate much different policy implications than those widely adopted at the time of his paper's publication.

II. SPECIFICATION

This section discusses the specification of the structural equations for Ehrlich's original study. …

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