March 2001
What Is the Cost of Justice Policy?
by Owen Lippert
No phrase invites scepticism faster than "our officials estimate the costs as." Witness the debate over the true cost of Canada’s new gun registration law. Will it cost $85 million, or $600 million or more? Sceptics abound inside government as well as outside. Ministry executives dread having to defend cost estimates they themselves barely understand. Ministers grow weary of fending off opposition and media queries which frequently raise unanticipated concerns. In consequence, pressure builds for official cost estimates to possess ever higher levels of accuracy and verifiability. It is surely a rite of passage for the government policy analyst to have to stay late on a Friday evening, on his or her spouse’s birthday, to provide a detailed justification of some statistic. Despite doubts, governments should continue the search for improved cost analysis.
Although new and more sophisticated analytical costing tools have emerged, some claim it is still smoke and mirrors—perhaps, but much improved smoke and mirrors. Since the middle of the century, academics and researchers have achieved incremental improvements in the methodology and practice of cost analysis. Great Britain, the United States, and Canada have led the way.
At its simplest, the costing of justice policy is the application of accounting and economic techniques to forecast the monetary costs of changes to existing policies and practices. At a more complex level, it seeks to predict changes in behaviour and the subsequent fiscal consequences. The methods are not without controversy as they rest upon assigning monetary values to human behaviour.
Why cost justice policy?
The question on the face of it hardly needs an answer. Of course, governments should have a rough idea of what their policies may cost both internally and externally. But it is not that simple. For instance, if a policy change is the "correct" action to take, what difference does its cost make? Accurate costing may actually engender opposition to a "correct" policy. This argument would hold merit if governments were only faced with one choice as to "correct" policy. Typically, they face many. For instance, there are far more ideas on how to reduce crime than the funds to support them. In making choices among policy alternatives, decision-makers should know three different kinds of costs:
- aggregate cost,
- average cost, and
- marginal cost
Aggregate cost is the total bill to government and society over a specified time period. Average cost is the cost per unit of what is desired, for example, the cost per year of incarcerating a prisoner. Marginal cost is the cost of achieving one more unit of what is desired, for example, the cost of deterring one more auto theft.
Nobel laureate Gary Becker posed the central question in 1968: "…how many resources and how much punishment should be used to enforce different kinds of legislation? Put equivalently, although more strangely, how many offenses should be permitted and how many offenders should go unpunished?" The dominant economic idea is that of marginal cost. How much does it cost to stop one more burglary, and is that cost justified in comparison to the losses of that additional burglary? Life imprisonment for burglary would surely drive the rate down. But is society willing to pay the millions of dollars necessary to incarcerate thousands of petty criminals, and would that be "just" or "economically efficient"?
With some measure of these costs, policy-makers are better able to predict which of the four outcomes a new policy will produce:
- higher benefits and higher costs,
- lower benefits and higher costs,
- higher benefits and lower costs, and
- lower benefits and lower costs
Justifications presumably can be made for any outcome. No justification exists for not knowing the potential outcome. Justice policy-makers have a unique obligation because the consequences go beyond simple, or simply measured, financial losses or gains.
Still, governments have made choices before without rigorous costing data. Why the interest now?
The twin pressures of efficiency and accountability
Costing research did not arise out of a vacuum. For instance, Great Britain’s pioneering efforts to cost justice policy were part of a broad response to two pressures. The first pressure was for greater efficiency in the public sector to match the gains in the increasingly competitive private sector. The second was the public’s higher expectations of accountability, fiscal and other, on the part of the government.
Canada has experienced the same pressure to achieve greater government efficiency. Our membership in the WTO, and most importantly the NAFTA agreement, has brought increased scrutiny of the efficiency of Canadian governments vis á vis those of our major trading partners. What is the competition about?
First, it is not a competition to reduce government expenditures willy-nilly. It is a competition against waste. When scarce resources might produce better results in private hands, governments must justify why they should perform their specific functions. In short, governments have found themselves competing to be efficient in order to demonstrate their ability to foster economic growth. Efficiency ensures that governments contribute what they do best to economic growth: efficiency also ensures that governments inhibit least what they inhibit of economic growth. True, governments invariably make trade-offs between economic efficiency and broader policy goals. Yet none can afford to do so in a haphazard and uncaring manner.
Governments face pressure for greater efficiency in more than just its "big ticket" fiscal and social service responsibilities. The demand for efficiency has now reached, or is now reaching into, areas of government such as legislative drafting, regulatory control, and judicial and semi-judicial dispute resolution. One might best describe the discussion of costing justice policy as really a subset of the larger concern for the efficiency of justice policy. As the World Bank slogan goes, "Institutions Matter." The more efficient Canada’s institutions of justice, the more efficient its economy. The more efficient its economy, the greater Canada’s ability to afford even farther-reaching justice reform.
The British government also had to respond to changes in public expectations of accountability. The public was no longer simply content to allow governments to deliver services as they saw fit. One consequence was Britain’s Citizen’s Charter initiative in the early 1990s which put into a specific "contract" the particulars of government service delivery, down to the level of how many days a letter should take to arrive and how long one should have to wait in a doctor’s office.
Canadians, too, want greater public accountability. Demands for accountability in the justice system probably focus less on efficiency than on effectiveness. Is the justice system helping to make Canada a safer, more secure place to live and work? Costing, at first, may not seem to have direct application to the effectiveness of the underlying policy. Yet surely it does. For example, if a policy stands in need of reform, costing methodologies can provide an order-of-magnitude understanding of what the most effective policy may be for the resources available.
Costing analysis also provides a means to better define the limits of government accountability. The government could sharply curtail the drug traffic in Canada by legislating that possession carries a life sentence, no parole. The cost both to government and the society would be immense. By not doing so, the message is sent that the country cannot afford to be completely drug-free. The government can only reduce the incidence of drugs to the level the public is willing to pay to enforce. Costing analysis shifts the public debate from absolute demands to relative choices.
Rigorous costing analysis may not dispel all scepticism about government financial estimates, but it will help to improve the process of making justice policy in Canada. It may ensure that we do not repeat the gun registry fiasco.
Source
Becker, Gary (1968), "Crime and Punishment: An Economic Approach," Journal of Political Economy, 78:169-217.
Owen Lippert (owenl@fraserinstitute.ca) is a Senior Fellow in Law and Markets at The Fraser Institute. He received his Ph.D. in History from the University of Notre Dame, Indiana.
info@fraserinstitute.ca
4th Floor, 1770 Burrard Street, Vancouver, BC, Canada, V6J 3G7
Tel: (604) 688-0221 Fax: (604) 688-8539 Book Orders: 1-800-665-3558 ext. 580
You can contact us at the above email address for any comments or information requests. Please report any dead links or technical problems.