Fines and prison

Incarceration is a primary form of punishment for serious crimes in most countries, but economists have long wondered whether its crime-reducing effect justifies its cost.

While research evidence suggests that more incarceration is associated with less crime (more on this in Week 4), it is also true that incarceration costs a lot more than other types of punishment. According to the Vera Institute, a non-profit organization, the annual cost of incarceration per inmate in 2010 was $47,421 in California, $60,076 in New York, and $21,390 in Texas. These hefty price tags do not include other indirect costs of incarceration, such as inmates’ foregone earnings while in prison, deterioration of their work skills, and emotional and financial distress inflicted on their family members. (Note how these indirect costs are less relevant in other types of punishment.)

At the other end of the spectrum is the use of fines as punishment. To the extent that fines collected from criminals can be directly used to boost spending on other public goods, the social cost of fines (the cost to offenders minus the gains to the public) may be close to zero. For example, when I pay $200 for a speeding violation, government may use it to spend more on highway maintenance, hiring more highways patrols and emergency medical staffs. On the other hand, what does the public gain by putting a criminal in prison for several years?

Fines are mostly used for minor crimes and violations, and most serious crimes are punished by imprisonment. Perhaps fines are just a more lenient form of punishment than prison, and thus cannot deter those who commit more serious crimes. But is this really the case? For a rational individual who compares the gains and costs of crime, a large enough fine would be just as costly as a multiyear prison sentence. For example, suppose you find that a year in prison is much worse than having to pay a $20,000 fine. But what if you had to pay $40,000, $60,000, or $80,000 instead? We can continue asking these hypothetical questions and eventually find the amount of fines that you would find just as bad as a one-year prison sentence.

Long prison sentences will cost a lot of taxpayers’ money as well as imposing various hardships on the offender and his family members. On the other hand, a large fine will cause severe financial distress on the offender, but at least the offender will be able to stay with his families and friends, and government can use the fine to improve public spending. In short, the two punishment options can be equally effective in deterring would-be criminals, but one would be a lot cheaper to implement than the other. Why don’t we go for the cheaper option more often then?

Indeed, theoretical models of crime and punishment usually predict that fines should be used instead of incarceration whenever possible. Mitchell Polinsky and Steven Shavell (2000) write that “fines are socially costless to impose, whereas imprisonment is socially costly, so deterrence should be achieved through the cheaper form of sanction first.”

Are Fines Really Socially Costless?

But in reality, the social cost of fines is probably not equal to zero. When you receive a $200 speeding ticket by mail and pay the fine online, it may appear that the only social cost of this punishment (how much you paid minus how much the society gained) is the cost of mailing the bill. However, collection of fines may actually take up a lot of public resources: A 2006 UK Home Office report estimates that it costs £91 to collect a £80 fine. It seems that the costs related to non-compliance, appeal processes, and enforcement can substantially increase the social costs of fines.

Successful collection of fines can become even more challenging for serious crimes involving heavier fines. For example, Anne Piehl and Geoffrey Williams (2011) report that, while the collection rate for minor infractions in Twin Falls, Idaho was nearly 100 percent, the collection rate for felony fines was only about 20 percent. Given this, the use of fines as an alternative punishment for more serious crimes may not be realistic. At the same time, it is still true that fines are less socially costly than imprisonment. An increased use of fines for less serious crimes may be a viable policy option. For more serious crimes, fines may be used in combination with prison sentences, in order to create larger deterrent effects with little additional costs.

Interestingly, recent research suggests that a simple policy intervention can significantly improve the collection rate of fines. Criminologist David Weisburd, Tomer Einat, and Matt Kowalski ran an experiment to examine whether the threat of potential incarceration for non-payment can improve the collection rate of fines. With cooperation of the Administrative Office of the Courts (AOC) of New Jersey, they have divided approximately 200 probationers with court-ordered financial obligations (with an average amount of $2,344) into two groups. Probationers assigned to the first group were told that serious delinquency in court-ordered payments would quickly lead to probation revocation and jail term, while the second group was assigned to the usual probation program.

They find that the collection rate for fines significantly improved under the threat of imprisonment. Only 13 percent of probationers assigned to the regular probation group paid their financial obligation in full, while 34 percent of those who faced the threat of incarceration did so. This “miracle of the cells” suggests that the collection rate can be substantially improved by an appropriate policy intervention. And with improved compliance, the use of fines as a less socially costly punishment may deserve a more serious policy consideration.


References:

  • Hendrickson, Christian, and Ruth Delaney, Vera Institute of Justice. “Price of Prisons: What Incarceration Costs Taxpayers.” (2012).
  • Home Office. “Strengthening Powers to Tackle Anti-social Behaviour, Consultation paper.” (2006).
  • Piehl, Anne Morrison, and Geoffrey Williams. “Institutional Requirements for Effective Imposition of Fines. “Controlling Crime: Strategies and Tradeoffs. University of Chicago Press, 2010. 95-121.
  • Polinsky, A. Mitchell, and Steven Shavell. “The Economic Theory of Public Enforcement of Law.” Journal of Economic Literature 38.1 (2000): 45-76.
  • Weisburd, David, Tomer Einat, and Matt Kowalski. “The Miracle of the Cells: An Experimental Study of Interventions to Increase Payment of Court‐Ordered Financial Obligations.” Criminology & Public Policy 7.1 (2008): 9-36.

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Economics of Crime

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