Incentives Structures and Criminal Justice

Abstract

The conventional assumption in economics of crime is that criminal justice system actors behave like social planners, choosing punishment levels to equate the marginal benefits and costs from society’s perspective. This paper presents empirical evidence suggesting in practice, punishment is based on a much narrower objective function, leading to over-incarceration. The costs and benefits of various punishment options are reflected at different government levels in the US. The 1996 California Juvenile Justice Realignment can be used as a natural experiment: it shifted the costs of juvenile corrections from states to counties, keeping overall costs and responsibilities unchanged. Moving the cost of incarceration from state to counties resulted in a discontinuous drop in the number of juveniles being sent to state facilities, but no change in juvenile arrests. This indicates that when costs and benefits of incarceration are not borne by the same agency, there is excess incarceration: not only is there more demand for prison than when costs are fully internalized; but there are no gains in terms of crime reduction from this extra incarceration.