Essays on the economics of crime

I present three essays on the economics of crime. The first considers an activity associated with 55% of all criminal offences in the UK: binge drinking. One group inextricably linked with such behaviour is the sports team. Members regularly engage in post-match drinking, where the team's reputation is at stake. Teams often apply peer pressure (the threat of punishment for refusal to compete) to ensure each member gets involved. Chapter 1 presents a simple model of competitive drinking, and evaluates the amount of peer pressure a team needs to apply when multiple equilibria exist. The thesis then turns attention towards criminal organisations. Chapter 2 discusses the use of initiation by protection rackets. Such rituals are widely used, and serve several purposes. Firstly, they allow initiates' skills to be assessed. Secondly, they act as an incentive to invest in skills. Thirdly, they signal to the racket's customers. The chapter derives conditions on the underlying distribution of abilities such that a racket can adjust initiation difficulty to improve its reputation. It then discusses these conditions in light of "key player" policies, suggesting they may be more effective than previously thought. Chapter 3 evaluates the impact of a variety of anti-crime policies on how a criminal gang recruits. Gangs counteract policy effects by adjusting the wage they offer and the intensity of violence they require their members to inflict. This can lead to policies backfiring; increasing the social cost of the gang. A policy which reduces the youths' incentive to join a gang leaves only hardened criminals as recruits. If gang size and violence are weak revenue complements, this causes the gang to substitute towards more violence. Policies are therefore most effective when they not only reduce the incentive to join the gang, but also increase youths' sensitivity towards inflicting violence

Storm before the calm? Adverse effects of tackling organised crime

Policies targeted at high-crime neighbourhoods may have unintended consequences in the presence of organized crime. Whilst they reduce the incentive to commit crime at the margin, those who still choose to join the criminal organization have relatively high criminal propensities. Large organizations take advantage of this, substituting away from membership size towards increased individual criminal activity. Aggregate crime may rise. However, as more would-be recruits move into the formal labour market, falling revenue causes a reversal of this effect. Thereafter, the policy reduces both size and individual activity simultaneously

Contests and negotiation between hubristic players

Why do contests exist in settings where negotiation provides a costless alternative? I assess a new explanation: parties may be overconfident about their ability or optimistic about their chances of winning. For both parties in a contest, this hubris: (i) reduces the incentive to exit the contest; (ii) reduces effort; and (iii) increases expected payoffs. Whilst hubris leads to the contest being preferred to costless negotiation, the welfare loss is nonmonotonic in either behavioural bias

Better feared than loved: reputations and the motives for conflict

Throughout history, victory in conflict has created fearsome reputations. Victory thus ensures greater allegiance of the wider population, increasing the victor's rents at the expense of their enemy. Such reputational concerns create two motives for conflict. When only the outcome is informative, the less feared party may attack to show that they are tougher than expected. If the fact that conflict occurred at all also conveys information, the more feared party may attack. If they do not, the population view peace as a sign of weakness and switch loyalties anyway. In this case, conflict arises to save face

Better feared than loved: reputations and the motives for conflict

Throughout history, victory in conflict has created fearsome reputations. With it, the victor ensures greater allegiance of the wider population, increasing their rents at the expense of their enemy. Such reputational concerns generate two motives for conflict. When only victory or defeat is informative, the less scary party may attack to show that they are tougher than expected. If the occurrence of conflict also conveys information, the scarier party is more likely to attack. By failing to do so, the population would perceive them as weak and switch loyalties anyway. In this case, conflict arises to save face

The storm before the calm? Adverse effects of tackling organised crime

Policies targeted at high-crime neighbourhoods may have unintended consequences in the presence of organised crime. Whilst they reduce the incentive to commit crime at the margin, those who still choose to join the criminal organisation are hardened criminals. Large organisations take advantage of this, substituting away from membership size towards increased individual criminal activity. Aggregate crime may rise. However, as more would-be recruits move into the formal labour market, falling revenue causes a reversal of this effect. Thereafter, the policy reduces both size and individual activity simultaneously

Recruitment to organised crime

Organised crime is unique within the underground economy. Unlike individual criminals, criminal organisations can substitute between a variety of inputs; chiefly violence and labour. This paper considers the effect of several popular anti-crime policies in such an environment. Using a standard framework, I find that certain policies may cause the organisation to reduce its membership in favour of more intense violence. Others may lead to increases in membership. Consequently, policies designed to reduce the social loss suffered as a result of criminal activities may actually increase it. Results prove robust to differences in hiring practices on the part of the criminal organisation