Custodial versus non-custodial sentences: Long-run evidence from an anticipated reform

We study the relative impact of custodial and non-custodial sentences on later crime and labor-market outcomes in Denmark, a country where detention conditions are particularly good. To do so, we take advantage of a large-scale reform of the Danish legislation implemented in 2000, whereby incarceration was replaced by a non-custodial sentence for most drunk-driving crimes, which represented a quarter of the custodial sentences inflicted prior to the reform. Our first key finding is that stakeholders anticipated the consequences of the reform: around the time of the reform, the number of cases tried dropped and the nature of the cases changed significantly. To measure the relative impact of incarceration, we therefore resort to a novel instrumental variable approach exploiting quasi-exogenous variation in the probability of being tried after the reform, and therefore incarcerated, based on the crime date. We find that incarcerated offenders commit more crimes and have weaker ties to the labor market after release. The pattern of results suggests that part of the explanation for this increase in offenders' criminal activities can be found in their greater precariousness.