ECONOMICS 1471
HOMEWORK #4-ANSWERS

1. Explain why private police might be more effective at preventing crime as well as solving crime solution than public police. What role do property rights have here? Use the graph on p. 438 of your text to illustrate this difference. (Hint: Look at p(x).)

See graph from lecture.

Private police would have stronger incentives for prevention and stronger incentives for recovering property and making arrests after a crime has occurred. This implies a higher probability of apprehension and punishment for the criminal with the result that the punishment curve will shift upwards when private police are employed.

Why does this result occur? In a private system of law, the victim has a property right in the crime and can sell this to a protection agency. Or a victim will already have an insurance policy with a private protection agency. In either case the protection agency will have a strong incentive to take effective prevention measures because that will keep the agency's premium costs down and attract customers. Additionally, after a crime has occurred, the protection agency has strong incentives to track down the responsible parties and gain restitution for the victims. Agencies that are effective here will also tend to gain more customers over their less successful rivals.

In contrast, since public police have a monopoly on protection, they are in no danger of losing business from poor performance. This monopoly effectively negates the victim's property right in any crime that harms him and does not allow him to sell that property right to a specialist in catching criminals. Hence they will tend to be less effective in capturing criminals (evidence indicates rather low clearance rates for many crimes). Additionally, public police as non-residual claimants will not suffer any losses from insufficient prevention activities and can use the existence of crime to bolster the budget of their particular agency. Public police will therefore be less effective in prevention activities and even have strong incentives to use increases in crime as an excuse to enhance the size of their budget and their agency.

2. What public choice reasons can be used to explain the evolution of public provision of peace and serenity?
Be sure you review the text's position on the public goods aspects of the provision of peace and serenity.

Public choice theory indicates that powerful interest groups can get laws passed and direct resources toward their enforcement at the expense of less politically influential groups. Thus police bureaucracies can lobby for the passage of victimless crime laws (against prostitution, gambling, and drugs) and get plenty of resources to enforce these laws. Visible support will come from those who take strong moral positions against such activities while no opposition will come from those whose moral sensibilities are not offended by such activities. Victimless crime laws create easy targets for the police as well as an argument for enlarging their budgets (witness the fact that a large majority of arrests for illegal drugs are for the possession of marijuana).

Notice that interest groups that get victimless crime laws passed do not pay the full costs of enforcing their moral preferences but spread those costs over all taxpayers, many of whom will experience net costs of enforcement. However these net costs are smaller than the costs of organizing and lobbying against such laws, so rationally ignorant taxpayers will not oppose the passage of such laws. Nonetheless, such taxpayers are forced riders while the interest groups are easy riders. This implies an implicit wealth transfer from the former to the latter group. (Note: A private system of law would allow some groups to enforce a ban on illegal drugs. Members of this group would bear the full cost of enforcement so that the costs would be internalized. However, this group might experience some problems when its members attempt to trade with persons in other jurisdictions with less strict laws concerning the consumption of drugs.)