The perverse incentives of private prisons

LAST week authorities captured two fugitives who had been on the lam for three weeks after escaping from an Arizona prison. The convicts and an accomplice are accused of murdering a holiday-making married couple and stealing their camping trailer during their run from justice. This gruesome incident has raised questions about the wisdom and efficacy of private prisons, such as the one from which the Arizona convicts escaped.

Mother Jones reporter Suzy Khimm, writing at Ezra Klein's spot, observes that the portion of Arizona's prison population now residing in privately owned and operated facilities is 20% and growing. "Nationally," Ms Khimm notes, "there's been a similar surge in private prison construction as the inmate population has tripled between 1987 and 2007: Inmates in private prisons now account for 9% of the total US prison population, up from 6% in 2000." Should we welcome this development?



The dominant argument for private prisons is that they will save taxpayers money, as for-profit owners have an incentive to seek efficiencies bureaucrats overseeing government institutions lack. Anyway, that's the theory. According to the Arizona Republic, the reality is that private prisons in the Grand Canyon State so far cost more on a per-prisoner basis than do public institutions. Some experts contend that firms in the prison business reap profits by billing government for rather more than their initial lowball estimates while scrimping in ways that may make prisons less secure.

Ms Khimm says she doesn't see "anything inherently wrong with privately run prisons," as long as they work as well at a lower cost. But I think I would object to private prisons especially were they more efficient.

As the economist and legal theorist Bruce Benson has observed, it is important to distinguish between "privatisation" and "contracting out". To fully privatise a government service is to get the government out of the business altogether. Consider garbage collection. If a municipal government decides to sell its garbage trucks and buy the service from a private company with taxpayer money, that's not privatisation. That's contracting out. In a fully privatised scheme, households deal directly with privately-owned garbage-collection services. In that case, government is cut out of the loop entirely.

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