Monday, January 01, 2007

Application of Opportunity Cost at Wal-Mart

Think about shoplifting from the perspective of a giant retailer like Wal-Mart. What is the optimal policy for prosecuting shoplifters? Prosecute every shoplifter, regardless of age and the amount stolen? That's probably not an optimal policy, considering the monetary costs to Wal-Mart of prosecution for legal fees and for paying employees to appear in court; and the opportunity cost to Wal-Mart of prosecuting shoplifters, in terms of the time involved by employees apprehending shoplifters and holding them until police arrive, etc.

Unlike most other retailers, Wal-Mart used to follow a zero-tolerance, 100% prosecution policy for shoplifting, but switched last summer to a policy where it will no longer prosecute first-time shoplifters, unless they are between 18 and 65 and steal more than $25 worth of merchandise.

From a
NY Times article, J. P. Suarez, who is in charge of asset protection at Wal-Mart, said it was no longer efficient to prosecute petty shoplifters. ''If I have somebody being paid $12 an hour processing a $5 theft, I have just lost money,'' he said. ''I have also lost the time to catch somebody stealing $100 or an organized group stealing $3,000.''


At 1/01/2007 5:28 PM, Anonymous Kit said...

Several years ago, in the UK, Woolworths prosecuted a "sweet little old lady" for shoplifting. There was a storm of protest from the press but the level of shoplifting dropped off dramatically.


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