Being a crime victim is unpleasant, even if it only involves property and not personal safety. In economic-speak, victimhood involves “disutility,” or “negative satisfaction.” After 30 tranquil years in the St. Anthony Park neighborhood of St. Paul I moved to Falcon Heights — and it is turning out to be a jungle.
Last week, I started my pickup in our building’s lot and heard a throaty roar. I got out, lowered my old bones to the asphalt and rolled underneath to see what had happened.
Egad! Zounds! There to my dismay, I saw two neatly cut exhaust pipe ends where the catalytic converter used to be. Some vile reprobate, some scum, had stolen that expensive component from my 14-year old Ford! Is there no decency in our society anymore?
Perhaps not.
But such victimhood does provide an opportunity for a learning exercise of identifying economic principles in everyday life. Here goes.
One question we ask in any situation is: “how does this affect society as a whole beyond the immediate person?”
I, of course, will be out the money it takes to restore my pickup to its former state. But the thief will have more money — perhaps $20 to $40 I am told — for his troubles. He did not get this for nothing. It took time to plan and execute the theft and sell the converter to a complacent used parts dealer or scrap metal yard. But I am a net loser and the thief a net gainer.
Others are affected. Neighbors in our building now know that there are greater risks to parking a car overnight in our lot than they thought. Feeling slightly less safe makes one slightly less happy — negative satisfaction, in other words.
This is true for all crime. Morally we should heed John Donne’s advice that harm to any other person “diminishes me,” but practically, we are more alarmed when someone is mugged near our own house than by similar assaults in distant neighborhoods. Research by psychologists and behavioral economists demonstrates that we place greater weight on nearby and recent perils than on objective crime data.
In the same category, I’ll spend hours on the phone with my insurance company, getting an appointment for an estimate, and taking the vehicle to get repaired. These losses are not monetary, but rather “opportunity costs” of time that I cannot spend doing more lucrative or pleasurable things. They are costs nevertheless.
There is more economics. On telling a friend of my loss, she noted “well, it is a very high pickup and easy to get under.” She is right. I bought it used 12 years ago. The original owner bought a special suspension package that raises it several inches. That was immaterial to my decision to buy. It turned favorable on the farm and it is easy to change oil. But it does keep me out of many ramps and it has proved more attractive to thieves.
I aided them in another way: parking in the most secluded part of the lot, against the wall of an HVAC enclosure and the nosing a retaining wall. It is the most shaded from the security of lights and cameras. I don’t want my old truck to make our toney condo look like an old trailer court and lower the value of everyone’s property. I don’t want to impose this “external cost” on friends. But their gain, however modest, turned out to be my loss.
Nobel Laureate Gary Becker argued that crime results from rational choice, with potential car-part thieves weighing the expected gains from crime against the expected probabilistic value of losses. The easier the crime, the more likely it will occur. The higher the probability of being caught and punished, the less likely. Becker’s assertion has been refuted as incomplete. Non-rational thinking also is important in most crimes, especially violent ones. But the trade-offs between ease of the offense and probability of punishment still plays some role. My high pickup in a shadowy corner is more likely to be hit by thieves than our other car, in its locked, alarmed, underground garage.
Moreover, if it is known that police forces are overwhelmed by more serious misdeeds, as St. Paul’s seems to be at the moment, potential criminals know that if not caught in the act by an officer, there will be no investigation. A few hundred dollar theft is not as important as a shooting or assault.
I, or an officer, could visit of scrap yards and used parts dealers, but the “transaction costs” of our time and mileage are greater than the expected value of recovering the property. It would not be the same if a $10,000 diamond had been stolen.
We have comprehensive insurance, so can get partial reimbursement. Paying for this type of insurance on a 14-year old vehicle probably is not financially rational. We usually cut vehicle coverage back to the legal minimum at some point of age and mileage, but we hadn’t done that yet for the pickup. Perhaps this is irrationality, or perhaps we have made a default decision that the transaction costs of handling it are less important than other things in our lives.
Our deductible is $250. Deductibles are a risk-management tool insurers use to reduce “moral hazard.” If they had to pay the first dollars of any damage, there would be no incentive for any one driver to avoid small dings. The cost of carelessness would be spread across all other policyholders.
There also is the question of the true value of loss, and whether the cash repair cost necessarily the right metric. When the straight-line wind on Mother’s Day of 2004 blew a boulevard tree through the 104-year old windows of our bedrooms and damaged the 23-year old shingles on our roof, our insurer was not willing to pay for all new windows and new shingles. An adjustment had to be made for depreciation of the damaged components.
So that was the first question I asked the claims rep: Would they pay for a new converter or would it be adjusted for the fact that the stolen one was 14 years old? Since I myself would never replace a converter on this old a vehicle whether it functioned or not, any adjustment for depreciation would increase our-of-pocket cost. But they would cover an entirely new one.
The increase in the effective value of my vehicle to me would be the same if I got a new converter or a used one, or none at all for that matter. The cut ends of the exhaust pipes line up neatly. A parts store has the pipe and fittings to replace it with simple tubing for less than $50. Despite arthritis, this is something I can do myself. After all, the truck has plenty of clearance.
But would this have an external effect on society as a whole? Catalytic converters are mandated by government to reduce pollution. For that reason, no mechanic may legally replace it with simple pipe, as I might. So my dollar saving might impose costs on everyone breathing air.
But what is that cost? The pollution reduced by catalytic converters mostly is a problem in dense urban areas, but not globally. I drive few miles a year, about 8,000, of which 7,000 are on trips to the farm. The aged converter that was stolen probably was not functioning at peak efficiency anyway. So how much would society really suffer from a simple pipe? Would it equal the difference between my $50 cash plus an hour and the $900 that a repair shop will charge.
I think not, but I take some pride in being law-abiding and I would have to weigh in the loss in “psychic income” from being a scofflaw.
The insurance company requires me to get an estimate from one of the chain repair shops with which they have an agreement. But once that estimate is approved, Minnesota insurance law requires that I can go to any garage I choose. The approved estimate, less my deductible, will be deposited in my bank account. So I can go to my usual mechanic if I bear any charges above the estimate. But there is also moral hazard. The money will be in my account even if I go the $50 straight pipe route. There will be more pollution in the metro area, but I’ll come out ahead in cash terms.
It is tough to be ripped off, but nearly anything is a teachable moment for an economist.