Monday, September 30, 2013

Downward mobility

A recent article in Sociology Mind, demonstrating that check cashing outlets strategically target high crime neighborhoods, is an indication that analytics and targeted marketing are kicking into top-gear. Demand for goods and services will be met with supply at prices that will clear the market. The providers of services will maximize profits by selecting the most desirable locations, consumers, products and prices. This is true for crime, guns, prostitution, check-cashing and other such entities. From a policy perspective, however, this has societal implications.

If the reduction of crime has a net economic value to society, then regulating agents that aid crime may be optimal. However, this is an analytical (and empirical) question as regulation adds costs to society by introducing artificial constraints to market clearing mechanisms, resulting in dead-weight losses. The positive spill-over and long-term beneficial effects of crime reduction has to be evaluated against the likely cost of regulations. Both the benefits and costs are uncertain and thus, policies that are staged, introducing flexibility to future course corrections are optimal. Since crime almost always has a perpetrator and a victim, the question is how to shut down access to resources for those who commit the crimes. This is not unlike cutting the blood supply to certain types of cancers. This is, however, a complicated problem as the victims rely on the same mechanisms to live.

Policies have to have a temporal dimension – possibly starting with a severe action (such as government controlled access) with a well laid out plan to move toward a full market based mechanism. The most beneficial policy is not a stagnant one but rather a system with clear and well-articulated transition from necessary regulation to solve the issue at hand to market based mechanisms.