It seems axiomatic that crime is a social problem; that we should be aiming for a complete reduction — it also seems self-evident to any economist that this is simply false. Of course, in saying this, I’m more saying that there is a nonzero optimal amount of ‘everything,’ whether this is true or not, ends up to be a matter of endless debate.

“Societies which admit private property — which is to say almost all and every society known up to the present — offer men two essentially different ways of acquiring wealth.” — Vilfredo Pareto.

From a purely business-economic perspective, the answer to this question is simple. The cost of preventing theft, on the margin will, at some point along the “enforcement set” become more expensive than the losses associated with it. Simply put, to prevent that last instance of any crime would cost more than it’s losses — at least for crimes where losses are easily quantifiable.

This is true over the entire set of quantifiable crimes; theft being the easiest to work with. Wal-Mart has long said to have an either unwritten, or highly confidential policy to not prosecute under theft under $25 — the costs and disadvantages of going through with prosecution is higher than the incentive which may be prevented.

Of course, these incentives are complex. If the fact that Wal-Mart doesn’t prosecute under $25 were to become public knowledge, stamped and confirmed policy, theft within that range would skyrocket — for any agent who’s morality does not prevent it, effectively there is no barrier to stealing things that are worth less than $25; everything under that price is priced out of the market — free. These incentives are what make this a complicated issue — at least from this perspective.

From a broader perspective, however, a more moral-economic perspective, we see a number of possible questions. Ignoring moral imperatives, the situation where the benefit to the thief could be higher than the loss to society, all things (incentives, overhead, and enforcement) considered. The situation arises where an actor has the infinite incentive to steal when, for instance, (s)he cannot afford the medication required to survive — the price elasticity (the change in demand with regard to any change in price) is effectively zero, but with no access to those funds even the most basic of economic theories falls apart. The assumption that an elasticity can be zero implies that an unlimited amount of funds can be accessed and that there is no income effect — in fact, there is an income effect, and it as such encourages theft. But is this theft suboptimal — morally, it may be right or wrong, that doesn’t matter — or does it create a situation where the benefit to society / the actor is more than the loss to society, and thus should be economically encouraged?

A paper by D. Usher in the Oxford Economic Papers, suggests that this is totally wrong. The ‘optimal’ amount of theft is 0, simply because any level above that induces unintentional inefficiencies in to the market — this is an interesting issue, and one that highlights what could be the problem of all of economics. Optimality is misdefined, misdirected and aims to complete a goal which may either be entirely nonsensical (NP) or simply unachievable. Perhaps even ‘efficiency’ in an economic sense introduces cases of inefficiency — to a point where the goal of efficiency is not a sound goal at all.

Usher’s paper posits that all forms of utility inefficiency — while not always definitively socially disadvantageous in themselves — including taxes, rent seeking, property rights, the free rider problem, etc. — can all be traced back to one commonality: theft itself or theft-like characteristics. The equalizing effects of theft, those outlined with the medicine example above, can be said to be true — but they create a solid, conforming and repeatable modification to the superstructure; a society without theft differs from a society with theft in that there’s loss and waste associated with preventing theft, there’s deadweight associated with the (otherwise productive) labour forgone by the thief (assuming theft becomes a full time job, rather than a ‘leisure time’ cost). There’s additional losses with regard to goods that might be destroyed by the thief (what Usher calls ‘non-clean theft’) and in the redirection of production towards goods which may be more difficult or less likely to be stolen.

Morally, much of this theft talk is unclear; as most of morality is. Is it ‘right’ for the man who is going to die if he doesn’t receive medication to die, steal the medication, or is it simply ‘wrong’ for the medication to not be available to him. Equality is an important issue in economics, arguably as important as efficiency, and certainly a factor which needs to be considered.

An interesting corollary to this, a study by Ned Carter of Uppsala University in Uppsala, Sweden, reported quite successfully that certain advertising techniques and promotionary activities — including price reductions and increased exposure — may result in significantly increased theft while sales did not increase significantly for 4 of the 6 products. A report which suggests retailers are doing themselves no favors by increasing many of their current promotional techniques.

The Usher paper, titled Theft as a Paradigm for Departures from Efficiency was published in 1987 in the Oxford Economic Papers and further goes in to a mathematical decomposition of the theft issue, for those who are interested.

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