The Behavioral Economics of Crime and Punishment

Sanjit Dhami and Ali al-Nowaihi ()

No 10/14, Discussion Papers in Economics from Division of Economics, School of Business, University of Leicester

Abstract: The Becker proposition (BP) is one of the founding pillars of the modern literature on Law and Economics. It states that it is optimal to impose the severest possible punishment (to maintain effective deterrence) at the lowest possible probability (to economize on enforcement costs). The BP is not consistent with the evidence. This is known as the Becker paradox. Using evidence from a wide range of phenomena we show that none of the proposed explanations for the Becker paradox are satisfactory. The BP has largely been considered within an expected utility framework. We clarify the Becker proposition and its welfare implications under expected utility. We show that BP also holds under rank dependent expected utility and cumulative prospect theory, the two main alternatives to expected utility. al-Nowaihi and Dhami (2010a) recently propose composite cumulative prospect theory that combines prospect theory with cumulative prospect theory. Under plausible conditions CCP is able to resolve the Becker paradox. Our article opens the way for incorporating non-expected utility theories into an economic analysis of criminal activity.

Keywords: Behavioral economics; Illegal activity; Expected utility theory; Rank dependent expected utility; Prospect theory; Prelec and composite Prelec probability weighting functions; Composite cumulative prospect theory; Punishment functions (search for similar items in EconPapers)
JEL-codes: D81 K42 (search for similar items in EconPapers)
Date: 2010-04, Revised 2010-07
New Economics Papers: this item is included in nep-cbe, nep-evo, nep-neu and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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