Criminal Deterrence in the Reduced Form: A New Perspective on Ehrlich's Seminal Study

Ehrlich [1973] is perhaps the best known and most influential study of criminal deterrence. Ehrlich's structural estimation of a three‐equation simultaneous system found large and significant direct deterrent effects of penalties on crime rates. However, recent theoretical results show that higher penalties may indirectly increase crime rates by reducing the probability of conviction. Hence, a reduced‐form model is needed to learn the total effect of penalties on crime rates. Using such a model, we find that the marginal deterrent effects reported by Ehrlich vanish. This result generates much different policy implications than those widely adopted following Ehrlich's publication.