Most people consider legal business activities, such as the purchase of goods and services, to be in a very different category from illegal activities where violators are subject to penalties. But the distinction between these two categories is not always clear.
My wife and I recently stayed just outside of Pucán, Chile. We went into town for dinner and parked in what looked like a legal spot on the street. (I don’t speak Spanish, so I’m not sure.) After dinner, we found a parking ticket on our windshield.
At first I thought I would wait and pay for the ticket when I returned the rental car. But I noticed the fine was 25 pesos per minute (about 3 cents per minute.) So I looked for one of the many men who wrote the tickets. Turns out I was able to pay the modest fine on the spot and get a receipt (pictured below). The next two nights we again received a parking ticket and immediately paid for it the same way.
This experience made me think about the difference between an ordinary commercial activity, like parking in a garage and paying X dollars per minute when leaving, and parking in Pucón and paying a fine of X pesos per minute when leaving Pucón. What is the essential difference between a crime and an ordinary market transaction?
[BTW, the post title is a reference to the old joke about a sign that says “Fine for Parking”. Does that sign mean parking is illegal, or that it’s perfectly fine to park your car in that spot? That’s what I wondered about Pucón.]
Society often scolds people for committing crimes. But why is one set of activities (crimes) considered reprehensible, while another set (business transactions) is considered acceptable? If the fine accurately reflects the social cost of your activity, why should we feel guilty for committing a crime and paying the price?
I suspect that our sense of outrage at certain breaches of the law reflects a (correct) intuition that our criminal justice system often does not lead to effective results. Let’s first consider an example of a violation of the law that is “effective”:
Suppose I value illegal parking at a specific location at $15. Suppose also that society views the violation as imposing a social cost of $10. In this case, my violation of the law could be effective. The government might assume there’s a 50% chance I’ll get caught for this violation and issue a $20 fine for illegal parking. In this case, the expected penalty is (0.50)*$20 = $10. If I value the parking space at $15, I’ll take the risk.
Now consider a case where someone assaults a pedestrian and steals his wallet. Common sense suggests that this is generally not an effective outcome for society, even if the criminal is poorer than the victim. Crime imposes all kinds of other costs. People devote resources to avoiding crime. An assault is physically and psychologically traumatic. Because abusers are often poor, financial penalties must often be accompanied by jail time. And while paying a $20 parking ticket merely transfers funds from a person to the general public, jail time is a costly burden on taxpayers. A dry loss.
To sum up, a parking violation is more like an ordinary transaction than a typical crime. It’s one of the reasons we don’t feel the same sense of outrage toward a parking rule violator that we feel toward someone whose actions impose serious negative effects on the well-being of society. .
Parking violations look a bit different from normal market transactions because the penalty is stochastic. We may pay no penalty or pay more than expected. After three nights in Pucón, I discovered that the tickets weren’t random. Each time, a ticket was affixed to my windshield almost immediately after parking. I have come to see the small town of Pucon as a giant parking lot. It took the stress out of thinking about whether I was likely to “get a ticket” or not. I started to consider this as a normal transaction in the market.
PS. I suspect that how we think about breaking the law and about penalties impacts how we choose to approach issues like externalities. Economists tend to favor the imposition of a “pollution tax” equal to the size of the external cost of pollution. Some environmentalists prefer a more rigid regulatory approach and are skeptical of ideas such as ‘pay to pollute’ and ‘optimal amount of pollution’.