The Surprisingly Complex Case Against Theft

Abstract

Explaining the efficiency of laws against theft is a more complicated matter than it first appears to be. Fred McChesney (1993), responding to a 1990 article by Lewin and Trumbell, argues that theft is inevitably inefficient when the indirect costs of the activity are considered. McChesney traces his analysis to a 1967 paper by Gordon Tullock, in which Tullock discussed the inefficiency of theft, rent-seeking, and monopolies. Richard Posner (1985; 1992) provides a different line of reasoning that focuses on the direct costs of theft. He claims that, because the market is adept at transferring goods to their highest valued use, those who bypass the market -- thieves -- on average value the goods they steal less than the owners. Neither analysis of theft, however, is entirely sufficient to explain its inefficiency.

As Part I of this paper explains, the Tullock-McChesney resolution is flawed. Notwithstanding the existence of indirect costs, theft is efficient if incurring those costs avoids incurring larger transaction costs from a voluntary sale and the thief values the goods more than the owner does. More generally, an efficiency analysis requires comparing the indirect costs of legalized theft with the transaction costs of market sales. In Part II, we make this comparison. Unsurprisingly, theft is inefficient, though for more complex and less certain reasons than the Tullock-McChesney thesis suggests: because indirect costs *usually* would exceed transaction costs and because indirect costs *often* would not avoid incurring transaction costs. The surprising result of our model is that Posner's theft analysis, while correct in a static model, turns out not to matter much to the dynamic inefficiency of theft. In equilibrium, very little of the costs of theft would be from transfers to lower valued users. Thus, we ultimately agree with Tullock and McChesney that the real problem with theft is its indirect costs. Finally, in Part III we discuss how this analysis bears on the criminal rules that define when involuntary takings constitute theft.

JEL Classification: K14