PrepTest 77, Section 4, Question 13

The following passage is adapted from an article published in 1993.

How severe should the punishment be for a corporate crime�e.g., a crime in which a corporation profits from knowingly and routinely selling harmful products to consumers? Some economists argue that the sole basis for determining the penalty should be the reckoning of cost and benefit: the penalty levied should exceed the profit that accrued to the corporation as a result of committing the crime. For example, if a corporation made a profit of $6 million from selling an unsafe product and the fine were, say, $7 million, these economists would feel that justice had been done.

In arguing thus, the economists hold that the fact that a community may find some crimes more abhorrent than others or wish to send a message about the importance of some values�such as, say, not endangering citizens' health by selling tainted food�should not be a factor in determining penalties. The law, the economists argue, should affect corporations' earnings rather than try to assess their morality.

But this approach seems highly impractical if not impossible to follow. For the situation is complicated by the fact that an acceptable reckoning of cost and benefit needs to take into account estimated detection ratios�the estimated frequency at which those committing a given type of crime are caught. Courts must assume that not all corporate crimes are detected, and legal wisdom holds that penalties must be higher as detection ratios decrease. Otherwise, a corporation might calculate that since it has only, say, a 1-in-10 chance of being caught committing a crime, even if the potential penalty is somewhat larger than the profit to be gained from violating the law it may still ultimately be more profitable to repeatedly commit the crime. A true reckoning of cost and benefit would therefore have to take estimated detection ratios into account, but this means that, in the above scenario, if the profit resulting from a crime were $6 million, the penalty would have to be not $7 million but at least $60 million, according to the economists' definition, to be just.

The economists' approach requires that detection ratios be high enough for courts to ignore them (50 percent or more), but recent studies suggest that ratios are in fact closer to 10 percent. Given this, the astronomical penalties necessary to satisfy the full reckoning of cost and benefit might arguably put convicted corporations out of business and throw thousands of people out of work. Thus, some other criterion in addition to the reckoning of cost and benefit�such as the assignment of moral weight to particular crimes�is necessary so that penalties for corporate crimes will be practical as well as just.

The following passage is adapted from an article published in 1993.

How severe should the punishment be for a corporate crime�e.g., a crime in which a corporation profits from knowingly and routinely selling harmful products to consumers? Some economists argue that the sole basis for determining the penalty should be the reckoning of cost and benefit: the penalty levied should exceed the profit that accrued to the corporation as a result of committing the crime. For example, if a corporation made a profit of $6 million from selling an unsafe product and the fine were, say, $7 million, these economists would feel that justice had been done.

In arguing thus, the economists hold that the fact that a community may find some crimes more abhorrent than others or wish to send a message about the importance of some values�such as, say, not endangering citizens' health by selling tainted food�should not be a factor in determining penalties. The law, the economists argue, should affect corporations' earnings rather than try to assess their morality.

But this approach seems highly impractical if not impossible to follow. For the situation is complicated by the fact that an acceptable reckoning of cost and benefit needs to take into account estimated detection ratios�the estimated frequency at which those committing a given type of crime are caught. Courts must assume that not all corporate crimes are detected, and legal wisdom holds that penalties must be higher as detection ratios decrease. Otherwise, a corporation might calculate that since it has only, say, a 1-in-10 chance of being caught committing a crime, even if the potential penalty is somewhat larger than the profit to be gained from violating the law it may still ultimately be more profitable to repeatedly commit the crime. A true reckoning of cost and benefit would therefore have to take estimated detection ratios into account, but this means that, in the above scenario, if the profit resulting from a crime were $6 million, the penalty would have to be not $7 million but at least $60 million, according to the economists' definition, to be just.

The economists' approach requires that detection ratios be high enough for courts to ignore them (50 percent or more), but recent studies suggest that ratios are in fact closer to 10 percent. Given this, the astronomical penalties necessary to satisfy the full reckoning of cost and benefit might arguably put convicted corporations out of business and throw thousands of people out of work. Thus, some other criterion in addition to the reckoning of cost and benefit�such as the assignment of moral weight to particular crimes�is necessary so that penalties for corporate crimes will be practical as well as just.