Costs of Crime

External Costs versus Social Costs

One of the most confusing and misunderstood concepts in the costs-of-crime literature is the difference between “social costs” and “external costs.” Social costs reduce the aggregate well being of society. External costs are involuntarily imposed by one person on another—whether or not they affect society as a whole.

Social costs and external costs are closely related but not identical. Some economists have argued that stolen property is an external but not a social cost, since the offender can enjoy the use of the stolen property. Cook (1983: 374) “presumes that the criminal is properly viewed as a member of society.” Accordingly, he argues that the relevant concept for purposes of policy analysis should be the social cost, excluding transfers of money or property. In contrast, Trumbull (1990) argues that those who commit crimes are not entitled to have their utility counted in the social welfare function; their gain is to be ignored. Thus, social cost is a normative concept based on a subjective evaluation of whether an activity is or is not socially harmful.

Regardless of whether or not stolen property is considered a transfer, there are other social costs associated with theft. For example, although an automobile theft is technically a “transfer,” the fact that cars are stolen forces potential victims to buy security systems, park in secure lots, and take other costly preventive measures. If the car or some of its parts or contents are fenced, resources devoted to the fencing operation are social costs, as these resources are diverted from socially productive uses. Becker (1968) has argued that the value of stolen property might be used as a proxy for these lost resources and are thus a crude measure of social cost.

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