Speeding Rich People

This post is about something interesting that I just read about in an academic paper (which you can also read here). It’s titled ‘How Do People React to Income-Based Fines? Evidence from Speeding Tickets Discontinuities’ and I know, ‘interesting’ and ‘academic paper’ are not supposed to show up in the same sentence…..

It turns out that in Finland, according to the author of this paper, the fine one pays if caught driving at more than 20km/h over the posted limit depends on your income. If your income is below a set cut-off, you pay a set fine, but if it is above that cut-off, then the size of the fine increases with your income. The paper includes the following sentence – ‘For example, in 2019, the Police assigned NHL ice hockey player Rasmus Ristolainen an income-based speeding ticket equal to approximately 120,000 euros.’

Ouch, eh? I do wonder if it was the police who set that fine or a magistrate, but either way, that’s a big speeding ticket.

One question to ask here is why Finland does that. The obvious – but still perhaps wrong – answer would be that Finland’s government operates under a pretty egalitarian ethic, which might be seen to imply that rich folks should pay more; for everything, including breaking the law. However, these economists are interested in this system not for that reason, but because a well-known theory of crime deterrence, due to now-dead economist Gary Becker, would predict that with this speeding fine structure, one should find that a lot of speeders are caught doing 19km/h or less over the limit. That is, if you bar-graphed the number of tickets given for being 1km/h, 2km/h……15km/h…..19km/h, 20km/h, 21km/h…..30km/h etc, over the limit, then the bars at 18 and 19 should be noticeably higher than the other bars. Put simply, no one wants to get dinged for doing 20 or 21 over when one could incur a much smaller fine by slowing down just a little.

Unfortunately for Becker, not that he cares now, this does not turn out to be the case, according to these researchers. One might instantly say that maybe that’s because most speeders have incomes below that cut-off, and hence don’t face that steep increase in fine if they do 20km/h+ over, but in fact these guys have really good data, including about the speeders’ incomes, so they can tell that the bunching does not happen even among drivers with incomes above the cut-off.

What they do find is that the higher income drivers who get pinched with the higher fine tend to slow down afterwards. Quoting from the paper:

“Those assigned, on average, a 200 euro larger fine are approximately 2-3 percentage points less likely to commit another traffic crime in the following 4-8 months. Compared to the average speeding behavior of the speeders who receive a smaller fixed fine, this estimate implies a 15-20 percent reduction in recidivism.”

I should stress that this is a research paper that has not yet been peer-reviewed, and I am not about to vouch for how well the statistical and data work was done.

I will, however, suggest that the Becker prediction of bunching would not be expected to hold in this instance – at least not by me – given that those who pay the higher fines are, by definition, folks with higher incomes, who therefore might be expected to be willing to pay higher fines. It is basic to economic theory that people with higher incomes have – other things being equal – a higher willingness to pay for most things, including driving fast. Indeed, one might expect that higher-income people put a higher value on their own time, which they can ‘save’ by driving fast. The author does not seem to consider this, as his behavioral model assumes that drivers may value speeding differently, but that any differences are purely idiosyncratic, and so not related to their income.

In fact, it occurs to me that all this really has nothing to do with the fines in Finland being based on income for richer folks, although that is what originally caught my eye. What Becker’s theory says is that people react to an increased fine by being less likely to speed. Since the fines for going above 20km/h over the limits are higher than for going less fast than that, people will go 19km/h over rather than 20 or 21. It doesn’t really matter that the amount of the fine is based on income, what matters is that it goes up at the 20km/h threshold.

Given that,  one could do a cleaner test of Becker’s theory in Ontario, where speeding fines are as follows:

Less than 20 km/h over: $3.00 per km/h over .

20 to less than 30 km/h over: $4.50 per km/h over.

30 to less than 50 km/h over: $7.00 km/h over.

Above 50km/h over: $9.75 per kh/h over.

(One also gets ‘demerit points’ added to one’s driving record for speeding. Those have consequences too, and the number of demerits you get depend on how fast you go – but the thresholds, for some reason, are different than for the fines. Go figure.)

Thus Ontario speeding fines depend on how fast you go, but not on your income, and there are three thresholds where the fines jump. Becker’s theory would predict bunching below 20, 30 and 50km/h over in response to this fine structure. And, doing more than 50km/h will get you charged with a second offense, ‘stunt driving’, which involves a whole additional set of penalties, including a fine of $2k to $10k (set by a judge, not your income, because if you go that fast, you have to go to court). Another reason for Becker’s theory to predict bunching under 50km/h.

Thus one could test Becker’s deterrence theory in Canada without any need for data on the incomes of the speeders. (You’d have to take into account the effect of the demerit point thresholds, too. Complicated.) Which would be good for anyone who set out to do this, because I’m pretty sure that, unlike in Finland, such data does not exist. The Finns (and the Danes, I think) seem to be happy with their government collecting all kinds of data on them, whether they speed or not. Canadians and Americans, not so much.

So far as I know, Becker’s theory has not generally done all that well when confronted with data about actual criminal behavior. A couple of economists did a review in 2014 of the empirical (that is, data-driven) research on criminal deterrence, and this is from the Abstract of the paper they wrote about what they found in their review (which you can download here):

“While there is considerable evidence that crime is responsive to police and to the existence of attractive legitimate labor market opportunities, there is far less evidence that crime responds to the severity of criminal sanctions.”

That response is central to Becker’s theory, and a theory that predicts behavior that does not seem to occur out in the world is what is known as a bad theory. That does not prevent it from being quite famous, however – among economists, at least.