A recent Washington Post article highlighted a new, and rather contentious, program in Sacramento wherein local law enforcement identified individuals at high risk of committing gun-related gang violence, giving each of them mentors and the necessary resources to create a life plan for themselves. However, as incentives affect behaviors, this program offers monetary incentives of up to $1000 per month for each of these individuals as long as they stick to each of their plans and not commit any gang violence. From the lens of an economist, this program can simply be viewed as a Coasian solution to the recently-growing problem of gun and gang violence in Sacramento.
This can be best understood as a negative production externality, as each unit of gang violence has an additional associated marginal damage (MD) which, when added to the private marginal cost (PMC) of each unit of gang violence, results in a social marginal cost (SMC) curve which is parallel and above the PMC curve. In the context of gang violence, this can be understood with the private cost of gang violence being the purchase of the gun and any potential repercussions in regard to the likelihood of jail time and retaliation from rival gangs. However, the SMC is higher because of the additional MD imposed on society in the form of expanding police force operations to solve the homicides created through this gang violence, as well as the larger insecurity generated through this violence. As such, there is an overproduction of gang violence in Sacramento, wherein the "socially optimal" level of such violence is lower than the "privately optimal" level of such violence. The provided solution in Sacramento is a Coasian one, wherein the producers of gang violence are paid an amount equivalent to the MD to have them reduce their production of gang violence to the socially optimal level. In this vein, the PMC curve shifts to match the SMC curve, thus reducing the overall production of gang violence to the socially optimal one. Another Coasian solution would be for those committing the violence to pay for the right to commit the violence, thus shifting the SMC curve down to match the PMC curve, as in this scenario the producers of the violence would be covering the cost of the MD.
There are several problems to this Coasian solution, rather than simply being a "program [that] subsidizes criminality." The assignment problem has been fairly well avoided as officials have been able to accurately identify those at highest risk for committing these crimes based on past records. As the government in Sacramento is dealing with gang violence on an individual basis rather than a group basis, they are able to more effectively avoid the holdout and free rider problems which arise when one of the negotiating parties is a group. This operates off of the fundamental assertion that the "property rights" to gang violence belongs to individuals that commit the violence, not to the gangs more broadly. As a program focused on Sacramento, the described program treats gang violence in Sacramento as a localized externality, which is a better target for a Coasian solution relative to broader, worldwide problems such as pollution.
This can be best understood as a negative production externality, as each unit of gang violence has an additional associated marginal damage (MD) which, when added to the private marginal cost (PMC) of each unit of gang violence, results in a social marginal cost (SMC) curve which is parallel and above the PMC curve. In the context of gang violence, this can be understood with the private cost of gang violence being the purchase of the gun and any potential repercussions in regard to the likelihood of jail time and retaliation from rival gangs. However, the SMC is higher because of the additional MD imposed on society in the form of expanding police force operations to solve the homicides created through this gang violence, as well as the larger insecurity generated through this violence. As such, there is an overproduction of gang violence in Sacramento, wherein the "socially optimal" level of such violence is lower than the "privately optimal" level of such violence. The provided solution in Sacramento is a Coasian one, wherein the producers of gang violence are paid an amount equivalent to the MD to have them reduce their production of gang violence to the socially optimal level. In this vein, the PMC curve shifts to match the SMC curve, thus reducing the overall production of gang violence to the socially optimal one. Another Coasian solution would be for those committing the violence to pay for the right to commit the violence, thus shifting the SMC curve down to match the PMC curve, as in this scenario the producers of the violence would be covering the cost of the MD.
There are several problems to this Coasian solution, rather than simply being a "program [that] subsidizes criminality." The assignment problem has been fairly well avoided as officials have been able to accurately identify those at highest risk for committing these crimes based on past records. As the government in Sacramento is dealing with gang violence on an individual basis rather than a group basis, they are able to more effectively avoid the holdout and free rider problems which arise when one of the negotiating parties is a group. This operates off of the fundamental assertion that the "property rights" to gang violence belongs to individuals that commit the violence, not to the gangs more broadly. As a program focused on Sacramento, the described program treats gang violence in Sacramento as a localized externality, which is a better target for a Coasian solution relative to broader, worldwide problems such as pollution.
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