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AbstractIncarceration rates have more than doubled in Australia over the past several decades, with a dramatic increase since 2010. There are many mechanisms by which these changes in imprisonment exert a causal influence on individual behaviour. The threat of incarceration can deter an individual from committing a crime. The experience of incarceration incapacitates a criminal but can also expose a prisoner to more criminal peers and reduce future legal employment opportunities. This article provides students an introduction to a rapidly expanding economics literature that empirically tests the mechanisms of incarceration and estimates its costs and benefits.

In this article we make a case for the continuing relevance of economic adversity and social policy in the understanding and prevention of crime. We begin by discussing early theories positing a causal relationship between economic adversity and crime and examine the factors that have led to a loss of confidence in these theories. We then summarise two prominent strands of research investigating important indirect criminogenic effects of economic adversity. The first deals with the long‐term impact of economic adversity on parenting. The second analyses the impact of economic adversity on crime through its effect on informal social controls within a community. Finally, we review recent empirical studies that use modern econometric techniques to explore the direct effects of economic adversity on crime, highlighting research focused on factors such as wages, employment, housing, and income support programs. The paper concludes by suggesting a number of areas for future research.