Economic Model of Crime

Most of the theories in this archive look for the cause of crime —in the brain, in childhood, in society, in the label others pin on us—. The economic model of crime does something different and provocative: it refuses to ask why someone is a criminal and asks, instead, how much they gain by being one. For this theory the offender is not a sick person, nor a victim, nor a rebel: they are a rational agent who does what any entrepreneur would do faced with a business opportunity —weigh what they can gain against what they can lose— and act accordingly. Crime, seen this way, is not a pathological anomaly but just another industry, with its costs, its profits, its risks and its profit-and-loss account.

// OriginBecker, the economist who criminalized economics

The story has an almost anecdotal origin. In 1968, the American economist Gary Becker —a future Nobel laureate— was running late for a doctoral student's exam and had to decide whether to park in a legal spot, far away and with time lost, or in a forbidden zone, close but with the risk of a fine. He did the calculation in his head: probability of getting a fine, amount of the fine, time saved. He parked in the forbidden zone. And in that trivial instant one of the most influential ideas of modern criminology was born: if he, a respectable citizen, had decided to break the law with a simple cost-benefit operation, why should any other offender be any different? Out of that came his founding paper, «Crime and Punishment: An Economic Approach» (1968).

Becker's thesis is of a brutal simplicity: a person commits a crime if the expected benefit of the crime exceeds the expected cost. And the expected cost is not simply the punishment, but the punishment multiplied by the probability of suffering it. In a rough formula: expected cost = probability of being caught and convicted × severity of punishment, plus the forgone legal opportunities. If robbing a bank promises a million, the probability of ending up in prison is 10 %, and the sentence amounts to a bearable «price», the sum comes out in favor and —according to the model— the crime will occur. The offender is not a monster: they are a calculator who responds to incentives just as the consumer responds to prices.

// The mechanicsSupply, demand and the crime's profit-and-loss account

The economic model does not stop at the individual calculation: it turns the whole of crime into a market. There is a supply of crime (those willing to offend at a given «price» —the risk—) and a demand for illegal goods (drugs, gambling, protection, stolen merchandise). There is competition, monopolies, barriers to entry, vertical integration and price wars —only here the price wars are waged with guns—. Organized crime, seen through Becker's lenses, stops being a social pathology and becomes what it really is: an industry that supplies, with entrepreneurial efficiency, goods and services that the State has banned but that the public keeps demanding. Prohibition did not eliminate the thirst for alcohol; it only transferred its supply from the legal market to the illegal one, and whoever knew how to set up the logistics —El Contable de la Mafia, the mob's accountant, among others— became immensely rich by applying perfectly orthodox management principles to an illegal product.

This view explains things that the «psychological» theories of crime do not explain well. It explains why drug trafficking persists despite brutal repression: as long as there is demand and gigantic margins, there will always be someone willing to take the risk, because the sum —for them— comes out in favor. It explains white-collar crime, where there is no trauma or marginalization, only executives in fine suits who discover that defrauding has a positive «expected value». And it explains why toughening sentences without increasing the probability of capture often does not work: if no one believes they will be caught, it makes no difference whether the sentence is ten years or thirty; in the criminal's equation, any number multiplied by a probability close to zero is still almost zero.

// In fictionFive entrepreneurs of crime

Fiction adores the criminal-entrepreneur, because their calculating coldness makes them fascinating and hateful in equal measure. — the Hutt, from Star Wars, is the Beckerian model in its purest state: a boss who runs an empire of smuggling, trafficking and extortion with the implacable logic of a chief executive —every slave, every cargo, every debt of Han Solo's is a line on a balance sheet—. El Contable de la Mafia, the Meyer Lansky of The Irishman, is his historical and real equivalent: «the mob's accountant», the man who turned crime into finance, with his famous boast that his organization «was bigger than US Steel». Neither of them kills for pleasure; they kill when the murder is profitable or when not doing so would cost more.

The other three show variants of the calculation. —, the executive from Aliens, is white-collar crime taken to the abyss: willing to sacrifice an entire colony of people —and Ripley herself— because the commercial value of a xenomorph to his corporation exceeds, on his spreadsheet, the price of a few human lives. —, Hank Scorpio from The Simpsons, is the brilliant parody of the supervillain as a motivational entrepreneur: a charming boss who treats world conquest as a business plan with human resources and corporate culture. And —, Dickens's Ebenezer Scrooge, is the limit case —the man who has optimized his life until reducing it to a single variable, money, and who only abandons his greed when he is shown that the final «cost» of that accounting is his own damnation—.

JH

Star Wars · Film

Jabba el Hutt

ES

Cuento de Navidad · Literature

Ebenezer Scrooge

HS

Los Simpson · Series

Hank Scorpio

CB

Aliens · Film

Carter Burke

ML

El Irlandés · Film

Meyer Lansky

From the intergalactic kingpin to the mob's accountant: five ways to treat crime as a business. Tap to open their case file.

// TodayDeterrence, certainty and the limits of homo economicus

The economic model left an enormous practical legacy. From it are born the rational choice theory and situational crime prevention: if the criminal calculates, then there is no need to reform their soul, it is enough to change the equation —put up cameras, improve lighting, toughen locks, increase surveillance— so that the «cost» of offending rises and the opportunity stops being worthwhile. A good part of contemporary applied criminology, from police hot spots policies to cash machines with ink that stains the banknotes, is a direct child of Becker. The idea that it is worth investing more in the certainty of punishment than in its harshness —more community policing than thirty-year sentences— is today empirical consensus, and it comes from here.

// The crackThe criminal does not always bring a calculator

And yet the model has a big crack, so big that the discipline itself had to patch it. Becker's offender is a perfect homo economicus: cold, informed, rational, capable of estimating probabilities and maximizing utilities. The real offender, very often, looks nothing like that. Most violent crimes are not the fruit of a calculation, but of impulsivity, anger, jealousy, alcohol, desperation or an adolescent brain that does not discount the future well. Nobody stabs their brother-in-law in an after-dinner argument after estimating the conditional probability of being convicted. The model illuminates premeditated and lucrative crime magnificently —the drug lord, the swindler, the boss, the corrupt executive— and is almost mute in the face of passionate and impulsive crime, which is the most frequent.

That is why the economists of crime had to introduce bounded rationality: the recognition that people do calculate, yes, but badly —with incomplete information, biases, emotions and a tendency to overvalue the immediate reward and to discount the distant punishment—. That correction saves the model without destroying it: the criminal is not a perfect calculator, but they do calculate something, and that «something» is enough for raising the cost of crime to reduce its quantity. The crack, in the end, is a warning against the imperialism of economics: money explains a great deal about crime, but it does not explain everything, and to believe that it does is as naive as to believe that it explains nothing.

// Why it mattersTaking seriously that crime sometimes pays

The economic model matters because it forces criminology to look at an uncomfortable truth that compassionate theories prefer to dodge: much crime is committed, quite simply, because it pays. Not every crime is a cry of social pain or the symptom of a wound; a good part is a rational business that a lucid actor has decided to set up because the numbers add up for them. Ignoring this leads to naive policies —believing it is enough to add more education and more employment for a boss who earns millions to voluntarily leave drug trafficking—. Becker reminds us that, as long as crime remains profitable, there will be those who choose it, and that sometimes the most effective tool is not therapy or the sermon, but changing the arithmetic: making offending expensive and making the honest path worthwhile.

But it also matters because of its limit, and in that lies its honesty. The model works as a powerful and partial lens: it focuses sharply on the El Contable de la Mafia who keeps the underworld's accounts and on the — who puts a price on some lives, and it blurs the impulsive murderer who calculated nothing. The final lesson is not that crime is always a business, but that sometimes it is, and that confusing the two —treating all crime as calculation, or denying that any of it is— leads to getting the response wrong. Mature criminology uses Becker as one of its lenses, not as its only pair of glasses: it knows when the criminal brings a calculator and when they bring only a knife and boiling blood.