TIME, MONEY, AND OPTIMAL CRIMINAL PENALTIES

I. INTRODUCTION Economic theory and widely held ideas of justice suggest that individuals guilty of identical crimes should face the same expected level of punishment. However, defining "identical crimes" and "expected levels of punishment" is not simple. In principle, one should measure the costs and penalties in terms of welfare losses, which are impossible to measure. Therefore, one must utilize a proxy for welfare. Most economic models of optimal criminal penalties are based on the goal of wealth maximization and assume that one can express the costs and benefits of crime in dollar terms. (Becker, 1968, Ehrlich, 1975; Heineke, 1978; Lott, 1987; and Posner 1986.) This paper proposes an alternative approach that uses time as the unit of measure and measures the costs and benefits of crime in hours or days. Money and time provide two alternative ways of making the interpersonal utility comparisons required in setting criminal penalties. The analysis here is the first to suggest using time instead of money as a proxy for utility and to explore the implications of time-based penalties. The wealth maximization approach uses money as the unit of measure. This implies that a dollar fine imposes the same "cost" on all individuals while equal prison terms penalize higher income people more since their foregone earnings are higher. The U.S. justice system, which purports to mete out prison terms of equal length for equal crimes, is both inefficient and inequitable from this perspective. This conclusion has led to the suggestion that the wealthy's ability to "buy" a lower probability of conviction with superior legal services increases both efficiency and equity by lowering expected penalties for the wealthy (Lott, 1987). Using time rather than money as the unit of measure results in very different conclusions. In a time-based system, equal prison stays impose the same costs on all individuals rather than being more onerous to the wealthy. On the other hand, a given dollar fine has a higher time cost to a person who requires more hours to earn the money to pay it. In the time-based approach, the optimal dollar fines of low-income. people would be lower than those of the wealthy. A fine that is proportional to income is equivalent to one based on hours as long as all income is earned: 10 percent of income is four hours income out of a 40 hour work week. This suggests that a proportional income tax can be considered a time-based "fine": a tax taking the same percentage of each person's earned income imposes equal sacrifice in terms of hours worked. A system imposing equal sacrifice in dollar terms would levy a head tax. The difficulties encountered in setting equivalent penalties for people convicted of the same crime stem from the impossibility of making interpersonal comparisons of marginal utility. A dollar standard relies on the implicit assumption that the marginal utility of money is equal for all individuals. The time-based penalty approach assumes that the marginal utility of time is equal. While both the marginal utility of money and the marginal utility of time differ among people, the variance in the marginal utility of time among potential criminals likely is lower than the variance in the marginal utility of money. This argument does not imply prison terms are preferable to "fines." Either is possible in a time-based penalty system, just as in a dollar-based system. The unit measuring the cost of the penalty (money or time) need not determine the manner in which the penalty is paid (fine or time in prison). A time-based system could set fines according to the dollar value of a day's income ("day-fines"), while a dollar-based system could consider the income loss of time spent in prison in setting prison sentences. The analysis here uses the time-based penalty system to illustrate how modifying some of the assumptions accompanying the basic utility maximizing analysis leads to very different recommended penalties. …