327 m2 notes - Economics 327 Notes Midterm 2 The Optimum...

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Economics 327 Notes Midterm 2 The Optimum Enforcement of Laws Stigler: marginal costs are necessary to marginal differece The structure of rational enforcement activities - Expected penalties from an offense should increase with expected gains so there is no marginal net gain from larger offenses - The expenditure on prevention and enforcement should yield a decrease in offenses, at the margin, equal to the return to those resources in other areas Pareto Optimal outcomes: necessary conditions for efficiency 1. MC >MB for the last unit exchanged 2. MC equal across all producesd 3. MB equal across all consumers Round table on allocation of resources in law enforcement- Thomas Shelling Assumptions of the model: - some crimes are more harmful than others - a calculation of harm done by each crime is needed - decisions makers will want to max the amount of harm avoided given the available resources - if enforcers are more aggressive in searching out some criminals than others they will increase costs to the former and decrease them fro the latter - the allocation of resources can affect the structure of criminal behavior Optimal enforcement The Optimal mix of crime
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Allocate resources in such a way that the ratio of MB/MC across all crimes is equal or the ratio of MB is equal to the ratio of MC Rule: Allocate resources in such a way that the ratio of MB/MC across all diffuses Neighborhood Allocation Efficiency considerations MC equal across neighborhoods Equity consideration Commonly policing programs and policies- agency community policy plans 2/21/08 Estimating Demand for Public Goods: Cost-Benefit analysis - The evaluation of alternative programs/ policies according to their costs and their benefits- measured on measured on monetary terms - Does a program have benefits that exceed its cost? Estimating Demand: Willingness to pay Utility compensated demand curve PS= Price of safety or marginal willingness to pay Shaded= individuals willingness to pay
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Theoretically we take the sum of all individuals to find total benefits or a given program - Had to come by these outcomes because had to measure Strength of WTP concept 1. Enables researchers to put a dollar amount or had to quantify benefits 2. Since it measures the benefits received by all individuals in the program- directly and indirectly- involved it measures the value of positive externalities produced All methods of valuing benefits in monetary terms are to be judged in terms of the
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This note was uploaded on 04/02/2008 for the course ECON 327 taught by Professor Malone during the Winter '08 term at University of Michigan.

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327 m2 notes - Economics 327 Notes Midterm 2 The Optimum...

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