Most people view legal market activities, such as buying goods and services, as being in a very different category from illegal activities where violators face penalties.  But the distinction between these two categories is not always clear.

My wife and I recent stayed just outside Pucón, Chile.  We drove into town for dinner and parked in what looked like a legal spot on the street.  (I don’t speak Spanish, so I’m not certain.)  After dinner, we found a parking ticket on our windshield.

At first, I thought I’d wait and pay the ticket when I returned the rental car.  But I noticed that the fine was 25 pesos per minute (about 3 cents per minute.)  So I looked for one of the numerous men that were writing the tickets.  It turns out I was able to pay the modest fine on the spot, and get a receipt (shown below.). The next couple of nights we again got a parking ticket, and immediately paid it in a similar fashion.

This experience got me thinking about the difference between ordinary market activity—such as parking in a garage and paying a fee of X dollars per minute on leaving, and parking in Pucón and paying a fine of X pesos per minute when leaving Pucón.  What is the essential difference between a crime and an ordinary market transaction?

[BTW, the post title is a reference to the old joke about a sign that says “Fine for Parking”.  Does that sign mean parking is illegal, or that it’s perfectly fine to park your car in that spot?  That’s what I wondered about Pucón.]

Society often scolds people for committing crimes.  But why is one set of activities (crimes) viewed as wrong, while another set (market transactions) is viewed as acceptable?  If the fine accurately reflects the social cost of your activity, why should we feel guilt about engaging in a crime and paying the price?

I suspect that our feeling of outrage regarding some lawbreaking reflects a (correct) intuition that our criminal justice system frequently does not lead to efficient outcomes.  First consider an example of a law violation that is “efficient”:

Suppose I value parking illegally in a specific place at $15.  Also assume that society views the violation as imposing a social cost of $10.  In that case, my breaking the law might be efficient.  The government might assume that there is a 50% chance I will get caught for this infraction, and impose a $20 fine for illegal parking.  In that case the expected penalty is (.50)*$20 = $10.  If I value the parking spot at $15, I’ll take the risk.

Now consider a case where someone mugs a pedestrian and steals their wallet.  Common sense suggests that this is generally not an efficient outcome for society, even if the criminal is poorer than the victim.  Crime imposes all sort of other costs.  People devote resources to avoiding crime.  A mugging is physically and psychologically traumatic.  Because muggers are often poor, financial penalties must often be accompanied by prison.  And while paying a $20 parking ticket merely transfers funds from one person to the general public, prison is an expensive burden on taxpayers. A deadweight loss.

To summarize, a parking violation is more akin to an ordinary transaction than it is to a typical felony.  That’s one of the reasons why we don’t feel the same sense of outrage toward a violator of parking rules as we feel for someone whose actions impose serious negative welfare effects on society.

Parking violations feel a bit different from normal market transactions because the penalty is stochastic.  We might pay no penalty at all, or we might pay more than we expected.  After three nights in Pucón, I discovered that the tickets were not random.  Each time, a ticket was put on my windshield almost immediately after parking.  I came to see the little town of Pucon as being like one giant parking garage.  That removed the stress of thinking about whether I was likely to “get a ticket” or not.  I began viewing it as a normal market transaction.

PS.  I suspect that the way we think about lawbreaking and penalties has an impact on how we choose to address problems such as externalities.  Economists tend to favor imposing a “pollution tax” set equal to the size of the external cost from pollution.  Some environmentalists prefer a more rigid regulatory approach, and are skeptical of ideas such as “paying to pollute” and the “optimal quantity of pollution”.