The economics of victim compensation

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Virginia Polytechnic Institute and State University

Congress has considered adopting a program to provide a 75 percent subsidy for the costs of state programs which would give payments to the victims of criminal attacks. All victims, in state and federal jurisdictions, would be compensated for their losses, should they not have sufficient private insurance.

The traditional arguments made for victim compensation are reviewed and criticized. An institutional history of the victim's role in society discusses the various forms of compensation that existed in different jurisdictions. The distinction between civil law and criminal law appeared to lead to the demise of compensation by the criminal. The various forms of public compensation adopted in most Anglo-Saxon countries since the early 1960s are reviewed.

After deriving an estimate of the possible costs of public victim compensation in the United States, the theory of public choice is applied to explain the origins of the political pressures for the compensation program. The theory of bureaucracy produces predictions as to the impact of the federal subsidy to state programs and with respect to the motives of the administrators of such programs.

Rawlsian notions of justice provide a proper perspective for a consideration of equity in a democratic setting. The application of such a paradigm of justice does not, contrary to the traditional views on equity, generate a compensation program of the nature of the one considered here.

A program designed to be just and to provide equal treatment for equal victims would also be based on some criterion of efficiency. The moral hazard problem is discussed with respect to public compensation. A simple economic model is developed to display the possible inefficiency of the compensation program as currently proposed.

Finally, the growth of crime and the decline in punishment over the last three decades are explored. If there has been a collective loss of will to enforce the laws and punish the law-breakers, victim compensation may be nothing more than a perverse response to the problems generated by a change in behavioral standards with respect to crime.