A General Overview of Economic Analyses in Crime Prevention
Issue 5 - January 2012
How can decision-makers determine the most efficient and cost-effective ways to prevent and reduce crime and victimization?
In this current era of fiscal restraint and accountability, decision-makers are increasingly expected to demonstrate that their crime prevention policies and programs are not only effective, but economically sound. In other words, there is an expectation of a return on investment: the ultimate benefits to society from such a program should outweigh the cost of its implementation. Thus, when faced with the choice of which crime prevention programs to fund, expand, replicate, or discontinue, it is important that decision-makers have a rational and objective method of assessing the impacts of policies and programs.
One approach that has been adopted in various countries around the world (e.g., United States, United Kingdom, and Australia) is economic analysis. Economic analysis tries to quantify, in financial terms, the inputs and outputs of programs, so as to establish costs and/or benefits associated with these programs. Two of the most common economic analysis approaches are cost-effectiveness and cost-benefit analysis.
Cost-effectiveness analysis asks, “How much does it cost to get an effect?” and links program outcomes (e.g., crime reduction) to program costs in order to estimate the per-outcome cost of a crime prevention project. This results in a statistic called a cost-effectiveness ratio (CER).
For example, if a program costs $300,000 to implement, and eventually prevents 50 auto thefts from occurring, then the CER is $6,000, meaning that it costs $6,000 to prevent one incident of auto-theft. In general, the lower the CER, the more cost-effective a program is. However, cost-effectiveness analysis does not consider benefits other than the specified program outcomes, nor does it financially quantify these benefits.
Cost-benefit analysis goes a step further to address the question of, “How much does society save per dollar invested in a program?” Given that crime typically has widespread impacts on individuals, families, communities, and society, in preventing a crime from occurring, there are many associated benefits that may be realized.
In this regard, cost-benefit analysis tries to consider and monetize a range of possible benefits (not only specific program outcomes), then compares the monetized benefits to program costs to determine the return on investment. This results in a unit-independent statistic known as the benefit-cost ratio (BCR).
To continue the example above, if the potential savings to society from a crime prevention program are estimated at $538,600, and the program costs are calculated to be $300,000, the BCR for this particular program is 1.80, which means that each dollar invested in the program ultimately yields $1.80 in savings to society from averted auto thefts. BCRs of greater than 1.0 generally represent positive rates of return and BCRs of less than 1.0 indicate the opposite. In the latter scenario, the cost to implement the program is greater than any eventual benefits.
The costing methodology for cost-benefit analysis should be chosen with care, and researchers must decide on some major concerns, for example:
1. Should intangible costs be included?
Possible societal benefits typically fall into two categories: tangible and intangible. Tangible costs are those costs that can, in general, be measured in financial terms, for example, criminal justice system expenditures. Intangible, or non-monetary, costs are not as easily quantified, such as the pain and suffering of victims.
2. How should we assign a monetary value to the various impacts of crime?
- The “bottom-up” approach
The bottom-up approach is currently the most popular method for computing the costs of crime, and relies on a simple accounting formula that adds up all the direct and indirect losses from crime.
- The “top-down” approach
Also called the “willingness-to-pay” method, this technique surveys a sample of the public to find out how much they would be willing to pay for various programs, reductions in crime, or to protect themselves against victimization
- The “break-down” approach
This method starts from an overall budget, filters out non-crime related costs, then tries to deconstruct the remaining costs into costs by crime type.
3. Should we rely on local or national estimates?
In conducting a cost-benefit analysis of a local crime prevention/reduction program, costs may be region-dependent due to a variety of demographic, social, economic and policy factors.
4. Should average, marginal (incremental) or aggregate costs be considered?
Average costs are calculated by dividing total costs by total participants over a specified period of time. Marginal costs describe how the total cost of a program changes with the addition of each new participant. Lastly, aggregate costs of crime are those that have widespread and significant impact on communities.
5. How should costs be “discounted?”
The costs of crime do not simply occur in the present, but may have future implications as well. However, for a number of reasons (e.g., an inflation), a dollar is generally worth more in the present. As such, economists will apply a correction called a “discount factor” to convert all anticipated future costs to their present values.
Beside the issues identified above, cost-effectiveness and cost-benefit analyses rely on rigorous and robust impact evaluations. Therefore, in order to meet methodological quality standards, careful consideration should be given to issues such as attrition, sample size, selection bias, displacement and diffusion effects, anticipatory benefits, and follow-up periods.
Mcintosh, C., & Li, J. 2012. An introduction to economic analysis in crime prevention: The why, how & so what.Research Report 2012-05. National Crime Prevention Centre, Public Safety Canada: Ottawa
For more information:
National Crime Prevention Centre
Public Safety Canada
269 Laurier Avenue West
Ottawa, Ontario K1A 0P8
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