ECON451 Lecture Notes - Lecture 6: Risk Neutral, Random Variable

• School: University of Waterloo
• Department: Economics
• Course: ECON451
• Professor: Phillip Curry

Document Summary

Both victim and injurer can take precautions. Justice retribution you harmed someone so you will be harmed. Incapacitation if you"ve proven to be criminally inclined we will lock you up so you don"t harm others extreme form of deterrence. Let p be the probability of being caught. Let b be the benefit from committing crime. Pu*(b, w-s) + (1-p)u(b, w) explain equation and what u stands for. If risk neutral p[b + w - s] + (1-p)[b + w] = b + w p*s. > p*s can have undeterrable crimes if b is big enough. Consider b as a random variable draw each criminal opportunity. Distribution f(b) pdf & f(b) cdf. Number of crimes = n[1 f(p*s)] Policy instruments: p, s influence functions above. d/dp crime rate = -nf(p*s)s d/ds crime rate = -nf(p*s)p note: p probably determined by the number of police. P and s are costly but we pay for p even if there"s no crime.