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The Cost of Crime: It just doesn't pay!
New Crime Study Pegs Cost At $1.7 Trillion Annually

Adjunct Associate Professor of Economics, David Anderson
A comprehensive study of the cost of crime written by an economist teaching at Davidson College this semester pegs the total cost of crime at $1.7 trillion a year, almost twice the previous estimated amount.

David A. Anderson said his study, which will appear in the October edition of the University of Chicago's Journal of Law and Economics, includes costs not considered in the many previous studies of the subject. "Economists have been looking at the cost of crime for a long time," he said. "But I think they've only looked at the tip of the iceberg."

A Societal Burden

Anderson's study, entitled "The Aggregate Burden of Crime," estimates all of the direct and indirect costs of every type of crime for the entire nation. In addition to expenses commonly associated with unlawful activity, it considers costs that have not been previously included. Beyond the expenses of the legal system, victim losses and crime-prevention agencies, Anderson adds factors such as the opportunity costs of time lost by victims, criminals and prisoners, as well as the cost of private deterrence and losses due to the fear of being victimized.

The net loss of $1.1 trillion, which does not include the value of transfers from victims to criminals as would result from theft or fraud, represents an annual per capita burden of $4,118. This total cost figure of $1.7 trillion closely compares to the total expenditures on life insurance ($1.68 trillion), the outstanding mortgage debt to commercial institutions ($1.85 billion) and annual expenditures on health ($1.03 billion).

Curtailing Criminal Activity

Anderson believes that this more accurate calculation of the repercussions of crime can serve as a better guide for our legal, political, and cultural stance towards crime. It can also help society prioritize programs designed to curtail criminal activity.

Anderson takes into account all costs which would not exist in an ideal society totally free of crime. That includes the cost of private preventative measures such as locks, safety lighting, alarm systems, fencing and private security guards. In addition it calculates the cost of crime-related injuries and deaths, including medical care, lost workdays, pain, and fear, and the opportunity costs of time spent preventing, carrying out and serving prison terms for criminal activity. Finally, it mentions a $28 billion decrease in property values of real estate and buildings that are cheaper than similar facilities because they are located in high-crime areas. The costs associated with living in the suburbs to avoid crime in the city center are also discussed, since there are significant costs for activities such as commuting and parking.

Anderson's study combines data from many existing sources of information about the cost of crime with new data to generate a more comprehensive measure of the impact of crime.

Breaking Down Crime

He breaks crime costs down into four major categories. "Crime-induced production" costs about $400 billion per year. That includes products and activities that do not contribute to society except in their association with crime. Examples include the production of personal protection devices, trafficking of drugs and the operation of correctional facilities. In the absence of crime, the time, money and material resources absorbed by the provision of these goods and services could be used for the creation of benefits rather than the avoidance of harm. The trafficking of drugs is the largest contributor to this cost, accounting for about $200 billion per year.

"Opportunity Costs" represent lost productivity due to people's incarceration or criminal activity. If they were engaged in legal pursuits, their activity would benefit society instead. Anderson estimates that each incarcerated inmate in the US represents $23,286 in lost productivity per year. Additional opportunity costs arise from time spent securing assets, purchasing and installing crime prevention devices such as airport and library security systems, and patrolling neighborhood watch areas. Anderson estimates the total opportunity cost of crime to society to be $130 billion annually.

"The Value of Risks to Life and Health" is a difficult cost to ascertain, representing the fear of being injured or killed, the anger associated with the inability to behave as desired, and the agony of being a crime victim. Anderson calculated that the 72,111 crime-related deaths cost society $440 billion annually, and the 2.5 million injuries from drunk driving, arson, rape, robbery and assault cost $135 billion a year.

"Transfers" represent the losses to victims of theft and unlawful deception that are balanced by gains to criminals who acquire the stolen goods or money. Anderson estimates that cost at $603 billion annually, including the costs of fraud, unpaid taxes and health insurance fraud.

Contact Anderson at 704/892-2245. A pre-publication draft of the paper is available on the web: "The Aggregate Burden of Crime". This is a service of the Social Science Research Network Electronic Library.

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