Research Handbook on Economic Models of Law
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Research Handbook on Economic Models of Law

Edited by Thomas J. Miceli and Matthew J. Baker

One of the great successes of the law and economics movement has been the use of economic models to explain the structure and function of broad areas of law. The original contributions to this volume epitomize that tradition, offering state-of-the-art research on the many facets of economic modeling in law.
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Chapter 12: Crime, expectations, and the deterrence hypothesis

Matthew J. Baker and Niklas J. Westelius


The deterrence hypothesis, first formalized by Becker (1968), states that criminals are rational agents that weigh the costs and benefits of their actions in deciding whether or not to engage in criminal activity. Since its initial statement, empirical models of the deterrence hypothesis have occupied a prominent place in economics. The standard approach to assessing the deterrence hypothesis is through investigation of the contemporaneous relationship between crime rates and variables that capture as well as possible the costs and benefits of committing crime. Results are of interest not only as tests of the deterrence hypothesis, but also in the role results play in informing policy. Further, the empirical investigation of the deterrence hypothesis has occupied a central position in the study of a variety of controversial issues, such as whether or not capital punishment is a deterrent to crime (Cameron 1994, Katz, Levitt, and Shustorovich 2003, Donohue and Wolfers 2005), the relationship between crime and gun control (Lott and Mustard 1997, Donohue 2004) and the impact of legalized abortion on crime rates (Donohue and Levitt 2001, Joyce 2004). We argue that the typical econometric model of the deterrence hypothesis is flawed. Our contention is based on the observation that empirical models of aggregate crime rates fail to take into account what should be one of the most important aspects of the crime commission decision if criminals are indeed rational ñ that decisions to commit crimes have long term consequences.

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