I agree with option 2. I think perhaps the most obvious sign that cops abuse this is when they end up firing more ammo at me to kill me for a 1 star than they could possibly obtain in cash for an arrest. At that point you can tell they're not killing for their job.
In my view it's done as a butthurt move for when they failed to arrest, or when they don't want to actually chase down somebody, but would prefer to just troll them by the free kill.
And I'll note that the majority of my wanted levels are obtained by either robbing or drug dealing. This really doesn't warrant the amount of violence I get for it from cops oftentimes, especially when you account for things like vehicle damage, etc. I've had cops wreck my car completely and kill me over a 1 star. It's rather absurd.
Edit:
Thinking about this though, would this be implemented in such a way to allow criminal vehicles to be shot? Something many have resorted to arrest me have been to shoot up my bike to get me off that first, then try the arrest, or more commonly, just kill me. There is a lot of complication to the, "No car DM'ing" thing.
Having played both sides, though been on criminal more, I think it's fair to say that the option to shoot up a car should be left in. Sometimes there is just no other sensible way to approach a high star criminal.
