5. Budget-Balancing Prison Change

Consider a state with a fixed prison capacity. The state (i) increased the average prison term from 5 years to 6 years and (ii) decreased the probability of being penalized for crime from 1/5 to 1/6.

Predict the qualitative effect of the change in policy on the equilibrium level of crime and explain the economic logic of your prediction.

O'Sullivan, Arthur. Urban Economics (p. 399). McGraw-Hill Higher Education. Kindle Edition.