# Caplan on optimal restitution

So this is a bit of a delayed response:

After reading my paper, Caplan recently posted that he began to think about the challenge of optimally calculating restitution. While Bryan's willing to admit that the United States is excessively punitive when it comes to victimless crimes, he struggles accepting that violent and property crimes are overly punished. If you assume a functioning restitution-based criminal justice system, as many libertarian philosophers prefer, then Bryan thinks punishments (calculated as time served within forced work prisons) might increase rather than decrease compared to today's system.

Bryan writes:

Let's start with willingness to pay. If you have a comfortable First World existence, I doubt you'd settle for less than \$10,000 to be the victim of a violent arm-breaking. It's not just the pain; it's the fear. If you add on medical expenses, that's probably another \$5000. If you count the willingness to pay of the people who care deeply about your well-being - most obviously your parents - that's probably at least another \$5000.

This all adds up to \$20,000. But that is only reasonable restitution if the criminal is sure to be caught. In the real world, the chance of catching an arm breaker is, say, more like 20%. The roughly optimal restitution then comes out to \$20,000/.2=\$100,000.

How many years of indentured servitude in a prison factory would be required to repay this debt? While violent criminals are generally healthy, young men, they're usually hard to monitor and manage and have few marketable skills. Even if you could get their gross marginal productivity up to \$20,000 a year, and hold room and board at the prison factory down to \$15,000 a year, it would still take 20 years to work off the debt. And that's ignoring interest! At a 5% interest rate, \$5000 per year just covers the interest on \$100,000 of principal, so even an immortal arm breaker would never work off his debt.

While I agree that the problem of optimal punishments is more complicated than many punitive severity theorists accord, I am hesitant to conclude with full certainty that property-based crimes are under-punished in today's system.

Bryan's right to point out that incarceration seems unlikely to be able to extract large returns from inmate laborers. But this is precisely why restitution advocates should question the presumed efficiency of prisons punishment technology. What if any amount of imprisonment is inefficient and therefore excessive? (Bob Murphy brings this up in the comment thread on Bryan's post).

Secondly, I'm not as comfortable making monetary estimates of inmate productivity as Bryan is. First, we don't have a good vision as to what sorts of economies of scale would exist within a restitution-based system. Many would argue that the competitive market for law enforcement services would be more innovative. Lowering costs and increasing quality of service would thus lower crime and make security more affordable for lower economic classes. Thus crime trends and labor market conditions for poorer classes might look different to the extent that they are currently shaped by law enforcement policies.

It is true that today's average inmate, prior to entry, yields a relatively low annual wage rate. But a variety of cases have shown to promote significantly higher levels of inmate productivity. The following material [with some editing] was cut from the final publication of my paper on repealing tattoo prohibition amongst inmates:

There are several cases where creative wardens took laissez-faire approaches to inmates participating in market exchanges. Such cases can be considered successful on three margins. Inmates employed and contracted with one another in peaceful and nonviolent ways rather than fighting violently. Second, previously unused prison labor was applied to lowered prison operating budgets. Finally, inmates gained real work experience. Once released, these skills may change their opportunity costs to commit crime.

Benson (1990) surveyed a dense prison market microcosm at Maine State Prison that attracted attention from Reason magazine in 1982 (Shedd, 1982).

[I]nmates were given access to the prison's shop equipment to produce novelties. Other prisons have done the same thing, but Maine's program differed from others in some signiﬁcant ways. First, there is a strong market for novelties because the prison is located on a major tourist route. Second, inmates were allowed to hire one another, thus allowing for specialization and the division of labor. The prisoners could not use dollars for these transactions so the currency used was canteen coupons, which could be spent in the prison's canteen or banked in the prison's business office.

After Warden Richard Oliver was appointed in 1976, prisoners were allowed to "patent" their novelty designs so they had incentives to innovate and expand their production. More significantly, Oliver lifted the limit on inmates' economic activity, and by 1978, the cap of 5,000 dollars and 5 novelty patterns that existed in 1976 was tripled. A "miniature economy" developed inside the prison, with two-thirds of the inmates participating as employers, employees, or both. Some entrepreneurs were extremely successful. One took over the prison's canteen and turned it into a proﬁt-making operation. This prisoner also had 30 to 50 employees in novelty production, and had diversified into other areas (e.g., he owned and rented about 100 TV sets to inmates). One prison administrator considered him to be the "most brilliant businessman I've ever seen." He is now out of prison running a novelty ﬁrm that employs former prisoners. As Shedd concluded, "It wasn't called that, but Maine State Prison had a rehabilitation program that was working (Benson, 1990, p. 337)."

German correctional institutions recently experimented in the production of high-end fashion apparel. The clothing line, Haeftling, German for "inmate," uses prison labor to make shirts, pants, shoes, and clothing accessories traditionally worn by inmates. Haeftling brought these styles to European fashion markets. It was successful as a prison reform program and a proﬁtable fashion enterprise immediately after its debut. "With 40 per cent of Tegel's prisoners unemployed, the internet project has come as a welcome boost to the jail. The prisoners get an allowance of EUR 26 a month, but ones working on the clothing line can earn up to EUR 12.50 a day. The cash from the sales is divided among the bankrupt city of Berlin, the prison and the inmates (Paterson, 2003)."

Bohle [the marketing head] and his team applied market psychology to market the Haeftling range in such a way as to snare the fashionistas: "It's about unusual labels; it's about telling a story, delivering an authentic message and conveying credibility." By being up front about the origins of the clothing, Bohle believes it will only be a matter of time before the Haeftling (prisoner) line takes on a cult following. Indeed, the initial reception indicates that his instincts are spot on (Amies, 2003).

The Financial Times listed Haeftling among many successful prison labor initiatives that lowered the tax burden of prison operations, and provided inmates with labor opportunities (Rigby, 2005).

Louisiana's Angola prison hosts an annual rodeo where inmates ride and compete with one another to paying audiences. Inmates sell handmade crafts and souvenirs to over 5,000 attendees during full-day craft festivals.18 The rodeo has grown and been successful for over 40 years and has improved conditions and won awards for the once controversial Angola prison.

In conversation (we had lunch after his post), Bryan seemed interested in these examples and thought researchers and policy makers should probably look more closely at them. On the other hand, he and I agreed that neither of us would be the first to invest our own monies in such systems were the opportunity to arise.

Nonetheless, I think Mario Rizzo's insights in Law Amid Flux should keep us from too narrowly defining our institutional parameters on this topic. The institutional changes necessary to usher in a restitution-based criminal justice system are so great that several of today's relevant price vectors would be subject to change.

This page contains a single entry by Dan published on June 22, 2010 8:33 AM.

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