Friday, January 27, 2012

Optimal Amount of Crime - Marginal Benefit / Marginal Cost changes with innovation

Q:Is there an optimal amount of crime in society?
A: Yes.
How? If the marginal benefits for policing one more unit of crime are less than the marginal costs for policing one more unit of crime, then we don't enforce the law because it is too costly
This principal is illustrated in the first graph below. The benefit for policing Murderers and stoping homicides is far greater than the cost of doing so. However, the cost of policing J-walkers is far too high compared with the benefit. It is important to note that the costs and the benefits are measured in dollars for conversation's sake.



So, What happens if a huge technological innovation all of the sudden makes it much less costly to police (ceteris paribus)? The marginal benefits for policing crime stay constant, however the cost of policing crime has been greatly reduced. This innovation would allow us to catch more J-walkers and more petty crime in the like, at a lesser marginal cost. (illustrated in the graph below)



Remember that the intraverse of this graph is true too. If a de-innovation occurred then crime would be more costly, when the marginal cost of crime increases it would cost more money to police less crime.

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