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The Economic Theory of Crime and Punishment

Updated: Aug 24, 2021

Criminal behaviour is based on various incentives and on the assumption that criminals are ordinary individuals and are not physically or mentally deformed as the nineteenth century criminologists believed. Gary Becker, in 1968, argued that an individual will commit a crime if the net of expected gains of committing a crime exceeds the legitimate activity. He also puts forth his analytical perspective of criminal activity being risky which depends on the likelihood of being caught and punished, with the severity of punishment given, which will in turn deter the occurrence of criminal activity.

One of the oldest theories of crime is the theory of differential association which assumes that “Person becomes delinquent because of an excess of definitions favourable to the violation of law over definitions unfavourable to the violation of law”(OPP, 1989). This theory conforms with the basic assumptions of economists of crime, which are, preferences and constraints that lead to crime. It states that an individual will chose a criminal path if the definitions of law-breaking exceed the law-abiding. Additionally, if the benefit of committing crime is more than the cost then there is a positive correlation between deviant behaviour and crimes committed.

The internal cost of the criminal is also one of the most essential factors which helps forbid crime. The internalisation of “bad conscience” will lead to a change in the course of interaction. But, interaction with criminal behavioural patterns will often weaken the internalisation of human actions. The human actions of the criminal offence often depend on the expected revenue of the action and official punishment.

Economists have also linked criminal activity with unemployment as low income and unemployment would leave lesser purchasing power in the hands of the individuals, which will motivate them to commit crimes. It is also evident that crime rates rise and fall with respect to unemployment. Moreover, if a person is rendered jobless, he is more likely to steal. Furthermore, an economic decline leads to fewer opportunities for potential criminals. (Pyle, 1995)

Studies have found evidence of an inverse relationship between personal consumption and growth in property crime, in the short run. ( No. 18. Winter 94/95). In the long run various macro-economic factors affect crime. Recent data revealed that property crime was down 1.6 percent from 2011, and violent crime rates are down for 18th year out of the last 20 (ROMAN, SEP 24, 2013). The reduction in crime has various explanations on various perspectives of criminologists and economists. The criminologists believe that bad economic scenarios result in more crime as people will not have enough income to buy basic necessities ,whereas, economists believe that crime rates are higher in better economic conditions as they may find better access to illicit activities, contraband, substance abuse etc. The approaches aforementioned seem theoretically appealing but empirically proven data shows that GDP rates have no impact, but short run consumption shows an inverse relationship with crime rates.

Punishment is essential and is regarded as a deterrence to crime as it would reduce the possibility of criminal activity. It is debated that punishment should be given according to the harm caused by the offence. It cannot be generalized and all convicts should not be given the same nature of punishment. Crimes are also not independent of each other and are related to one another as individuals can shift from one criminal activity to the another with respect to the severity of the punishment given and chances of getting caught.

The concept of marginal deterrence given by Stigler (1970) proved to be significant as it stated the forms of punishment that should be given. For instance, if the punishment of rape and murder is life imprisonment then a person would be tempted to kill the victim of rape in order to reduce the chances of getting caught. No incentives should be given to offenders where they can act sequentially. Therefore, the severity of punishment should differ according to the crime committed and should not lead to marginal deterrence. Marginal deterrence is the incentives created by criminal penalties for offenders to refrain from committing more harmful acts.

Another issue that arises with respect to punishment, is the degree of punishment which should not be the same for an attempted and completed crime. If the severity of punishment remains the same then there is no incentive for an individual to withdraw from criminal activity and will be tied to the contractual connections of the criminal activity. Also, the punishment should differ from the first offence and its recurrence.

There are various forms of punishments that are currently practiced such as fines through monetary compensation, community service orders, and life imprisonment. All these punishments differ in resource cost. The cost of life imprisonment would be the highest, as proper maintenance is required whereas fine collected would be revenue. Crimes of dissimilar nature should not be pitched against the other. For instance, the punishment of murder charges should not be similar to illegal selling of products. Under the ”death by distribution” law drug sellers can be charged for second degree murder if someone overdoses on illegal substance which they have sold and no proof of the seller acting with malice would be required. Therefore, proper evaluation of the cost and benefit of a crime should be done to promote an efficient and effective allocation of resources with justice given to the victim. The punishment given should also give justice to the victim harmed and should be formulated in such a way that the convict should pay and learn a lesson from the crime committed.



  • OPP, K.-D. (1989). The Economics of Crime and the Sociology of Deviant Behaviour A Theoretical Confrontation of Basic Propositions . KTmos, Vol.42, , 405-430.


  • Pyle, D. (1995). The Economic Approach to Crime and Punishment. The Journal of Interdisciplinary Economics, ,, Vol. 6, pp. 1–22.

  • ROMAN, J. (SEP 24, 2013). The Puzzling Relationship Between Crime and the Economy.

  • Nettle, D. (2015). Crime and punishment. In Tyneside Neighbourhoods: Deprivation, Social Life and Social Behaviour in One British City (pp. 65-82). Cambridge, UK: Open Book. Retrieved from

  • Levitt, S. (1998). Juvenile Crime and Punishment. Journal of Political Economy, 106(6), 1156-1185. doi:10.1086/250043

  • Mark Finnane. (2014). Labour History, (107), 222-224. doi:10.5263/labourhistory.107.0222

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