Excess burden of criminality and redistribution

A model where a portion of the population participates in illegal activities is developed. The propensity to participate in crimes depends on the probability and the opportunity cost of beingarrested. The government can influence these variables by law enforcement expenditures and by social transfers. We analyze the cost minimizing policy mix and the incentive of wealthy agents to finance redistribution. We compare this approach with standard modelling where redistribution follows from altruistic preferences.