Getting Tough on Crime: Exercises in Unusual Indifference Curves.

Applications help teach theory. Two generations of students have learned to appreciate the power of indifference-curve analysis through the in-kind transfers versus income transfers exercise in the typical consumer-theory chapter of their textbooks and the negative income tax versus guaranteed income analysis in the factor-input chapter (Mansfield 1993; Browning and Zupan 1996; Pindyck and Rubinfeld 1995; Call and Holahan 1983). More recently, applications on uncertainty and information have appeared in intermediate textbooks (Katz and Rosen 1994; Frank 1995). Some teachers use unusually shaped indifference curves to stretch the concept and deepen understanding. Some textbook authors serve this taste for the unusual by introducing indifference curves between one "good" and one "bad," yielding upward-sloping indifference curves. The income-work diagram and the pollution versus numeraire-good analysis in Ruffin (1988) serve as examples. I have not found in my shelves of complimentary textbooks a meaningful opportunity to apply indifference curves between two bads. I believe that such an unusual application will require the deepest understanding of the preference axioms and demonstrate further the importance of indifference curve analysis. The economics of crime and punishment offers such a case. The model is developed by making reasonable assumptions about the interaction between criminals and the deterrence system. As Becker (1968) has noted, society imposes expected disutility on criminals through the expected punishment for crimes.