Social cost of theft

Definition

The social cost of theft refers to the overall loss to society incurred through acts of theft.

The private cost of the original owner of the item incurred because of the loss of that item could, in principle, be offset by the private benefit of the new owner. Thus, the value of the item stolen need not itself reflect the social cost of theft. Rather, the social cost of theft may arise from any of these factors:

The cost to the thief of planning and executing a theft: This is a waste because there is no net gain to society through the thief's planning.
The cost to the original owner of protecting against theft and tracking down thieves: This may include resources that the owner spends, time that the owner spends planning and insuring against theft, and resources spent hiring investigators to locate the thief. For instance, people in areas with high rates of theft on the streets at night may incur extra precautions by not going out at night, thus missing out on night life.
The possibility of more violent crimes occurring in conjunction with theft
Perversion of incentives: If a large number of people are making money through theft, this might influence the incentives and morale of people trying to make money honestly. The influence could be in two opposing directions. On the one hand, they may be less inclined to work and become rich because of the possibility of theft. On the other hand, they may be inclined to work more than what is otherwise optimal for them, in order to insulate against the possibility of theft.
The thief values the item less than the person who bought it: In this case, the private cost to the person who bought the item exceeds the private benefit to the thief. This is intuitively plausible because, in many cases, a thief who valued the item the same amount may well have been willing to buy the item. Further, effects such as the endowment effect may enhance the sense of loss of the original owner. However, in many cases, the value to the item attached by the thief is the same (for instance, for theft of money). In some situations, the thief may value the item even more.