Judicial Errors and Crime Deterrence: Theory and Experimental Evidence

The economic theory of crime deterrence predicts that the conviction of an innocent (type-I error) is as detrimental to deterrence as the acquittal of a guilty individual (type-II error). In this paper, we qualify this result theoretically, showing that in the presence of risk aversion, loss-aversion, or type-I error aversion, type-I errors have a stronger effect on deterrence than type-II errors. We test these predictions with two experimental studies where participants choose whether to steal from other individuals, under alternative combinations of probabilities of judicial errors. The results indicate that both types of error have a significant impact on deterrence. As predicted, type-I errors have a stronger impact on deterrence than type-II errors. This asymmetry is entirely explained by differences in the expected utility gains from crime, whereas non-expected utility factors do not play a significant role.