One fundamental and often ignored view within economics is that humans have the propensity to display irrational behaviour in the decision-making processes. Based on this notion, one can conclude that we have a fundamental tendency to act corruptly and be generally criminally-inclined except maybe the virtuous few.

One can further infer that how advanced an economy or society is, generally depends on what measures or incentives it has enforced to deter or punish its criminals (both violent and white-collar). In most cases, we find that in countries where punishment is severe – such as in Central Europe or Nigeria, the criminals end up moving to less strict countries – like in any free market.

The economics of crime, especially the level of violent crime experienced in countries like South Africa and Brazil, is something that requires adept research if anything is to be done. In the US, studies were conducted to access the impact of legalized abortion on the level of crime. This was discussed in detail in a best-selling book by Levitt and Dubner’s called Freakonomics. There it was found that legalizing abortion (an act seeing by many as legalized killing equivalent to death sentences) reduces the level of drug abuse and subsequently other criminal activity.

Perhaps there is no relevance here but for instance, abortion is legal in South Africa yet a high crime rate prevails. So, what’s the problem then? Part of the problem lies in the fact that the incentives/benefits of committing crime far outweigh the “costs” and chances of being caught and convicted by the judiciary.


John Nash through his renowned works (well at least amongst economists), devised what he called “game theory” or “the prisoner’s dilemma”. Cheating occurs through degrees of severity from a classroom test or examination all the way to the plotting and execution of murder or indirectly killing individuals by selling users addictive drugs. Then you have your white-collar crime such as insider trading, corporate espionage (unlawfully acquiring recipes, formulas, and technologies from rival companies). Or simply ‘cooking the books’ or siphoning off profits from a company’s coffers.

Nash’s rationale for such cheating behaviour boils down to the attitude of: ‘if I don’t, someone else will, and leave me with the short end of the stick – so given the option, I’ll always cheat’. Nash’s explanation is one ‘formally proven’ reason for human ‘irrational’ behaviour – or rather, could we say it is rational if the outcome is to favour the decision-maker in the short or long term? This is instinct is innate in human behaviour of not such a few.

Coming back to the subject of crime: higher than usual levels has often been blamed on the poverty caused by poor and exclusionary fiscal, social and monetary policies. There are of course more layers and underlying factors unique to the history of political climate and resource allocation. Further studies (such as that in the Freakonomics book) need to be carried out such as the potential effects of police presence in deterring crime in the diagram below:

Police officers per 100,000 population by regions and sub-regions (medians)

Crime deterrant


Also, highly recommended for law enforcers, economists, government officials, and students, is to read the book entitled Economics of Crime by Erling Eide, Paul H Rubin & Joanna M Shepherd.

This book, unlike many others, reviews the theory of public enforcement including probability and severity, fines and imprisonment, repeat offenders, incentives of enforcers, enforcement costs and enforcement errors.


It might shed some light as to how criminally-inclined people can be dealt with once and for all. Because as we know – whatever government is doing to fight crime now it’s not really working effectively.

“When crimes are left alone long enough to fester, a second economy is borne.”

The proceeds from a ‘secondary’ economy because of criminal activity never benefit society and even though people like Pablo Escobar were seen by locals (in his Colombian town) as philanthropists, their assistance came at a price. Such contributions which are naturally tax-free generally are referred to in economics as ‘social ills‘. A third market is formed – one comprised of the need to feel secure.

But fighting fire with fire (with more guns & police who are sometimes corrupt themselves) will not alone solve the problem – criminals simply become more aggressive when met with a more confrontational approach as seen in South Africa: the Jeppestown (Johannesburg) shoot-out in 2006 for example, left several police officers and criminals dead.

It’s time to get ’smarter’ about crime and look to the accuracy and conclusive study of human behaviour and the use of incentives – be it positive or negative.

As crimes continue to ravage, communities, cities and countries, conspiracy theorists can then (sensibly) argue that perhaps government officials (and policy-makers) have relatives who own or have stakes in security companies.

This then places less of an incentive for them to do much about crime. So, conceivably, to begin with, those with such vested interests in the third economy would need to be weeded out of the system if anything is to be done about crime to bring about some rationality to society.


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