Question

Because of a recent wave of jewelry store robberies, a city increases police surveillance around jewelry stores. The increased surveillance costs the city an extra $900,000 per year, but as a result, the amount of jewelry that is stolen falls. Specifically, without the increase in surveillance, jewelry with a retail value of $1 million would have been stolen. This stolen jewelry would have been fenced by the jewelry thieves (on a different city) for $200,000. Some of the robberies would have been violent affairs and cost an estimated $400,000 in psychological damage to employees, customers and store owners.

(a)(10 pts) Should the jewelry robbers be given standing when analyzing this project? Why or why not?

(b)(10 pts) What is the net social benefit (for the city) resulting from the police surveil- lance program?

For questions (c) and (d), suppose the jewelry stores are at the heart of the city’s down- town area, a place frequented by both local residents on their way to work and back to their homes and by out of the city visitors (e.g. tourists). Both groups indicate the increased police presence makes them feel safer while moving around downtown and it has resulted on a better experience overall. The first group, local residents, value this higher safety in $500,000 and the second group value it at only $100,000. Assume the higher security hasn’t translated into an increase of tourism (or visitors in general) nor in an increase of the visitor’s spending level while in the city.

(c)(10 pts) While analyzing the “increase in surveillance” policy from a city perspective, one of the analyst in the mayor’s office indicated they should include the benefits seen by the tourist with the following statement: “Although impacts seen by “out of the city” individuals are usually not taken into consideration when we analyze city wide policies, in this case we must. During the small time-frame visitors come here they become citizens of our city and we owe them as tax payers to provide goods and services they will enjoy. As such, is our ethical duty to consider every visitor as equal to local residents for our analysis.” is he correct or incorrect in his logic? Why or why not?

(d)(5 pts) Taking into consideration this new information, what is the net social benefit (for the city) resulting from the police surveillance program?

Answer 1

a) Suppose the city decides to increase surveillance. Then,

• Cost to the taxpayers of the city is $900,000.
• Cost to the robbers is $200,000.
• Benefit to the stores is $1,000,000.
• Benefit to the employees, customers and owners psychologically is $400,000.

Case 1: Robbers are given standing

In this case, benefit to the city is $1,000,000+400,000-900,000-200,000 = $300,000.

Case 2: Robbers are not given standing

In this case, benefit to the city is $1,000,000+400,000-900,000 = $500,000.

Therefore it makes more sense not to give standing to the robbers when analyzing the project because the robbers do not pay taxes and hence the city is not obliged to work in their favor. Also, the analysis favors a decision which discourages bad behavior.

b) From the above analysis, the net social benefit is $500,000.

c) Suppose the city decides to increase surveillance. Then,

• Cost to the taxpayers of the city is $900,000.
• Cost to the robbers is $200,000.
• Benefit to the stores is $1,000,000.
• Benefit to the employees, customers and owners psychologically is $400,000.
• Benefit to the local residents is $100,000.
• Benefit to the tourists is $500,000.

We assume robbers are not given standing for obvious reasons.

Case 1: Out of city individuals are given consideration.

In this case, benefit to the city is $1,000,000+400,000+100,000+500,000-900,000= $1,100,000.

Case 2: Out of city individuals are not given consideration.

In this case, benefit to the city is $1,000,000+400,000+100,000-900,000 = $600,000.

Therefore it makes more sense to consider out of city individuals when analyzing the project because they pay taxes and hence the city is ethically obliged to work in their favor even though tourism is not boosted by this action.

d) From the above analysis, the net social benefit is $1,100,000.