Understanding the cost-of-crime literature requires some basic familiarity with several important economic concepts. This chapter provides a non-technical review of the fundamental economic principles underlying the cost-of-crime literature. The purpose of providing this background is to give the reader enough knowledge to understand the proper uses and limitations of these estimates. Different methodologies for estimating costs will also be considered. Some of these alternative methodologies have only been employed in a limited fashion. Finally, recent attempts to estimate the costs of crime have been criticized by some authors. These critiques are reviewed in some detail.
The methods one uses to estimate the cost of crime are very much dependent on how one defines costs. In this book, I take an economic approach to defining costs. This section explains the underlying theory behind estimating costs and distinguishes between various types of cost. We first begin with the economic theory of crime.
Economics is the study of the allocation of scarce resources. For each good or service that is traded in the marketplace, there is a “supply” and “demand” that ultimately determine its price and quantity sold. Some goods and services are not formally traded through normal marketplaces. Examples of such “non-market” goods (or “bads”) are pollution, government services, and crime. It is often useful to consider the “supply” and “demand” of such non-market goods and services. This paradigm is especially useful in thinking about violence (Cook, 1986). Although people do not normally buy and sell the right to be victimized (or to be free of victimization), markets do exist that affect the likelihood of being victimized. That offenders “supply” violence is perhaps most obvious. But do they respond to economic incentives in a manner similar to supply curves in economics? In economics, if the price in the marketplace is increased or the cost of producing the good decreases, more firms will supply the good in question. Similarly, if the “expected cost”