Crime, coordination, and punishment - An economic analysis

In the standard economic theory of crime and punishment, a risk-neutral ind ividual will commit an offense if and only if his private benefit exceeds t he expected sanction for doing so. To the extent that several individuals s imultaneously choose whether or not to commit the offense, it is assumed th at their decisions are independent of each other. The purpose of this paper is to investigate a situation in which an individ ual's propensity to engage in an illegal activity may depend also on the be havior of other individuals. We consider a two-period model: In each period , individuals decide simultaneously whether to commit the offense. A police authority is in charge for the arrest and conviction of offenders. We assu me that the police authority has a limited enforcement budget such that it cannot arrest and convict every offender. In this situation, the expected p ayoff of an individual from committing the offense is higher the more indiv iduals also decide to behave illegally. We analyse the interactive behavior in this model and answer the following questions: When are individuals responding to others' behavior, when are th ey influencing others' behavior. And, what is the optimal enforcement polic y to forestall intel active behavior. (C) 2001 Elsevier Science Inc. All ri ghts reserved.