Optimal law enforcement when victims are rational players

Abstract

The economic analysis of crime usually views a victim as a passive party whose role is limited to suffering harm. In this paper, we extend the economic theory of law enforcement by modeling victims as an active party in criminal deterrence. First, they may take some precautions to avoid victimization. Second, they may or may not report their victimization.

The lack of reporting weakens law enforcement and criminal deterrence by reducing detection rates. This suggests that victims could be encouraged to report by being paid a compensation. Nevertheless, compensating victims certainly reduces precaution. We argue that such effect never offsets the gains obtained in terms of criminal detection and apprehension.

I have benefited from the comments of my D.Phil. supervisor, Hugh Gravelle, Paul Madden, three anonymous referees and Kai Konrad. I am also grateful to Antony Dnes, Alon Harel, Kelly Markva, Jon Seaton, and seminar participants at Nottingham Trent, Loughborough, Universidade Nova de Lisboa, and Instituto Superior de Economia e Gestão de Lisboa for helpful suggestions. An earlier version of this paper was circulated under the title ‘An economic analysis of victims’ behavior: reporting crime and compensation’ . Financial support from FCT, Lisbon, Portugal is gratefully acknowledged. The usual disclaimer applies.