Policy Finance & Accounting Jan 1, 2011

Pre­vent­ing Crime Waves

Why harsh pun­ish­ments for all offens­es may exac­er­bate crime

Good_Studio via iStock

Based on the research of

Philip Bond

Kathleen Hagerty

In the twelve hours that spanned the night of April 15, 2010 and the wee morn­ing hours of April 16, gun vio­lence in Chica­go claimed the lives of sev­en peo­ple and wound­ed fifteen. 

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But that one night was mere­ly a foot­note in a vio­lent crime wave that was grip­ping the city. Things had got­ten so bad that ear­li­er in the month gun­shots inter­rupt­ed the Chica­go police superintendent’s press con­fer­ence about the spike in gun vio­lence. Res­i­dents and elect­ed offi­cials called for assis­tance from the Illi­nois Nation­al Guard. It was not the first time vio­lent crime had spi­raled out of con­trol in the city, nor would it be the last.

Gun vio­lence even­tu­al­ly returned to more nor­mal” lev­els with­out the help of the Nation­al Guard. (Chicago’s homi­cide rate is three times New York’s, so nor­mal is a rel­a­tive term.) Still, the vio­lent month of April 2010 again raised a peren­ni­al ques­tion in law enforce­ment: how to best respond to crime waves, or even nor­mal lev­els of crime?

One answer may come from the world of finance, which has its own crim­i­nal ele­ment. Researchers Kath­leen Hager­ty, a pro­fes­sor of finance at the Kel­logg School of Man­age­ment, and Philip Bond, a pro­fes­sor at the Uni­ver­si­ty of Penn­syl­va­nia, used their exper­tise in finan­cial reg­u­la­tion enforce­ment to study crime waves and deter­mine how author­i­ties can best pre­vent them. Typ­i­cal pro­pos­als have includ­ed increas­ing mon­i­tor­ing, ratch­et­ing up inves­ti­ga­tions, and impos­ing stiffer penal­ties, and Hager­ty and Bond looked at them all. Politi­cians favor tough penal­ties because they are cheap and psy­cho­log­i­cal­ly reas­sur­ing, but in real­i­ty, harsh penal­ties may make things worse.

Strict The­o­ries
Politi­cians are not alone in rec­om­mend­ing harsh penal­ties to com­bat crime. Many the­o­ries advo­cate impos­ing max­i­mum penal­ties, which can include mas­sive fines, life sen­tences, or even the death penal­ty — it does not real­ly mat­ter, so long as the hypo­thet­i­cal penal­ty is harsh enough to deter all but the most crim­i­nal ele­ment. Though such pun­ish­ments are often unre­al­is­tic (or moral­ly ques­tion­able), these the­o­ries draw on some sound log­ic: enforc­ing laws and con­duct­ing inves­ti­ga­tions are expen­sive, but deter­ring crime through harsh penal­ties is cheap, which accord­ing to exist­ing the­o­ries, makes them the most effi­cient deterrent.

But you don’t see penal­ties like this in real life,” Hager­ty points out. The rea­sons for this are sundry, but include mankind’s propen­si­ty to make mis­takes, society’s gen­er­al sense of fair­ness, and the impos­si­bil­i­ty of imple­ment­ing cer­tain max­i­mum penal­ties, such as suf­fi­cient­ly large fines, she adds.

Deter­ring crime through harsh penal­ties is cheap, which accord­ing to exist­ing the­o­ries, makes them the most effi­cient deterrent.”

One thing you do see is mar­gin­al penal­ties,” Hager­ty says. Mar­gin­al penal­ties are dif­fer­ent crimes get dif­fer­ent penal­ties.’ That’s the thing you see most often. Lit­tle crimes get lit­tle penal­ties and big crimes get big penal­ties.” It is a sen­si­ble approach, one that is gen­er­al­ly accept­ed through­out the world. But econ­o­mists and oth­er aca­d­e­mics lacked a con­vinc­ing the­o­ry as to why max­i­mum penal­ties are the excep­tion rather than the rule.

So Hager­ty and Bond test­ed the mar­gin­al penal­ty prob­lem the humane way — through math­e­mat­i­cal mod­el­ing. Their equa­tions revealed that while max­i­mum penal­ties sup­press crime in most cir­cum­stances, they cre­ate an all-or-noth­ing world for crim­i­nals — one in which crime either ceas­es to exist or exists ceaselessly.

The para­dox of max­i­mum penal­ties stems from both human nature and the real­i­ties of law enforce­ment. Peo­ple have dif­fer­ent ten­den­cies toward crim­i­nal behav­ior, some­thing that was not rec­og­nized in much of the ear­li­er lit­er­a­ture that pro­mot­ed max­i­mum penal­ties. At one extreme are peo­ple who have zero taste for crime; noth­ing will entice them to com­mit a crime. At the oth­er end are those for whom no penal­ty is severe enough to deter them. They pose a sig­nif­i­cant prob­lem. Name­ly, they guar­an­tee that no soci­ety will ever be free of crime, no mat­ter how dra­con­ian the punishment.

The peo­ple in the mid­dle, how­ev­er, are wild cards. Their deci­sions influ­ence crime rates great­ly. They might com­mit a crime if the cor­re­spond­ing penal­ty were mild or the prob­a­bil­i­ty of get­ting caught were suf­fi­cient­ly low. Even­tu­al­ly, some in that group will com­mit minor offens­es, and under a sys­tem of mar­gin­al penal­ties they will be sen­tenced accordingly.

But under a sys­tem of max­i­mum penal­ties, these small-time crim­i­nals might decide to up the ante. After all, by com­mit­ting any crime, they would already be fac­ing the max­i­mum penal­ty, so they would be inclined to com­mit a crime that would bring them the max­i­mum ben­e­fit, like rob­bing a bank instead of a con­ve­nience store. As more crim­i­nals com­mit­ted more egre­gious offens­es, law enforce­ment would become over­whelmed. This, in turn, would decrease the chances of the crim­i­nals’ get­ting caught, which would encour­age more peo­ple to com­mit crimes. A crime wave would ensue.

Light­en Up
To break a crime wave under a sys­tem of max­i­mum penal­ties, Hager­ty and Bond rec­om­mend not more patrols or more inves­ti­ga­tions, but rather less severe pun­ish­ments. Peo­ple with a mod­er­ate taste for crime would return to com­mit­ting small­er offens­es, as the penal­ty sched­ule would no longer encour­age them to move up the crim­i­nal lad­der. With few­er severe crimes to inves­ti­gate, law enforce­ment could regain its balance.

The dif­fi­cul­ty for law enforce­ment is deter­min­ing what nor­mal” crime rates should look like. Mar­gin­al penal­ties could entice some peo­ple to com­mit small crimes, so penal­ties should not be too light, and penal­ties that are too severe could encour­age crim­i­nals to com­mit more egre­gious acts. Unfor­tu­nate­ly, the paper does not offer any advice on this matter.

What it does pro­vide are guide­lines for how enforce­ment agen­cies should allo­cate their lim­it­ed resources. The answer is decep­tive­ly sim­ple — know the peo­ple they are mon­i­tor­ing. For exam­ple, police offi­cers would be more effec­tive if they spent more time get­ting to know the peo­ple on their beat. That way, when a crime is com­mit­ted, the offi­cers would have a bet­ter sense for who might have done it and could more effi­cient­ly direct an inves­ti­ga­tion. Hager­ty cites com­mu­ni­ty polic­ing, where­by offi­cers walk the streets rather than patrol them from squad cars, as an exam­ple of effec­tive mon­i­tor­ing behavior.

Though few sys­tems employ max­i­mum penal­ties — North Korea may come close, but even there sen­tences vary in length — the three-strikes laws many states have on their books are a step in that direc­tion. Under such laws, the first two crimes a per­son com­mits receive the nor­mal sen­tences, but the third is pun­ished more severe­ly. This can cause crim­i­nals to esca­late the sever­i­ty of their third crime, much as small-time crim­i­nals do under threat of a max­i­mum penalty.

Though Hager­ty and Bond’s paper is a the­o­ret­i­cal exer­cise, it does inch experts clos­er to under­stand­ing which penal­ties can best deter crime. It also frees the­o­ry of the assump­tion that law enforce­ment can dynam­i­cal­ly scale its enforce­ment resources up or down to vary­ing lev­els of crim­i­nal activ­i­ty. When enforce­ment resources are lim­it­ed, the deci­sion to com­mit a crime depends on what every­one else is doing. That comes up in a lot of set­tings,” Hager­ty says, from par­tic­i­pat­ing in riots to speed­ing to cheat­ing on your income taxes.

Relat­ed read­ing on Kel­logg Insight

Reward Now, Pun­ish Lat­er: Pun­ish­ment alone may not change social norms

Judg­ing the Jury Vote: Explain­ing the pit­falls of total agreement

Featured Faculty

Kathleen Hagerty

First Chicago Distinguished Professor of Finance; Senior Associate Dean of Faculty & Research; Faculty Director of PhD Program

About the Writer

Tim De Chant was science writer and editor of Kellogg Insight between 2009 and 2012.

About the Research

Bond, Philip, and Kathleen Hagerty. 2010. Preventing Crime Waves. American Economic Journal: Microeconomics. 3(2): 1-24.

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