Benefit-Cost Analysis and Crime Prevention

Governments have long used cost-benefit analysis and related techniques to determine whether infrastructure such as roads or dams should be constructed. Cost-benent analysis in crime prevention is a relatively new field - it has rarely been used even though crime costs the Australian community approximately $18 billion per year; that is, 4 per cent of Gross Domestic Product (GDP). This paper outlines techniques of cost-benent analysis and gives some evaluated examples in crime prevention. These are mostly overseas examples, as Australian analysis is in its infancy. It may be the case that a dollar spent on early childhood developmen t wul yield a grea ter net benefit than the same dollar spent on an additional prison cell. Not au early in terven tion programs are necessarily cost effective. This paper cites the (American) Perry Preschool Program which, for every dollar spent on the program, the community gained roughly $7 work ofbenents in crime reduction and improvement of life opportunities. It also cites the Hawaii Healthy Start Program which, for every dollar spent, yielded a benefit of only 38 cen ts. In situational crime prevention, the measurements are easier and more direct. In the (British) Kirkholt housing estate, every ? 1 spent on a burglary reduction program yielded ? 5 in savings, while in an Australian study, every dollar spent by the Victorian Totalizator Agency Board (TAB) yielded a $1.70benentin reduced robberies. As crime imposes considerable costs on society in terms of financial, emotional, and opportunities forgone, identifying and investing in effective programs is a winning sti-ategy. Adam Graycar Director The Australian Institute of Criminology has estimated that the annual costs of criminal events for 1996 in Australia were between $11 billion and $13 billion. Given the difficulty in attaching dollar values to the intangibles, this figure is most likely to be an underestimate. Nevertheless, it still represents a considerable loss to society, in the order of 2.5 per cent of Gross Domestic Product (GDP). When the money spent on intervention and prevention, including criminal justice and security industry activities, the above figure is increased by a further $8 billion dollars a year (Walker 1996). The bottom line is that crime and the methods used to prevent it are costly. What is important for society as a whole, and policy makers in particular, is to ensure that scarce tax dollars, that could be used for a host of competing alternatives, are efficiently allocated to effective programs or policies. This does not necessarily mean that resources should be allocated to those crime prevention initiatives that are most effective in reducing the level of crime, but that additional tax dollars be allocated in such a way to maximise the return (lower crime) per dollar spent. A relevant technique, developed by economists in the 1930s, used to determine the efficient allocation of resources is benefit-cost or cost-benefit analysis (CBA). What is Benefit-Cost Analysis? In its strictest form, social benefit-cost analysis represents a conceptual framework for evaluating and comparing various investment projects within the government sector, for example more prison beds or more nurses for prenatal home visits. Benefit-cost analysis and closely related techniques such as cost-effectiveness analysis can be used: * to find the greatest benefit for a given budget, * to determine the optimal amount to be spent on a project, and * as a guide to project selection or maintenance. There are two major types of costbenefit analyses that can help government in resource allocation decisions. Ex-ante CBA, the common form of CBA, has a direct and immediate impact for assisting governments in making decisions about the allocation of scarce resources. Ex-post CBA analysis is undertaken after a program is up and running. This type of CBA can not directly and immediately inform governments about resource decisions, because costs are already sunk. …