The Incentives of Private Prisons

John F. Pfaff

Executive Summary

A common criticism of private prisons is that they encourage the firms running them to cut services, programming, and training, since cutting costs maximizes profit, and the resulting increases in recidivism actually help keep prisons full and the payments coming in. This is not, however, a problem with privatization per se, but rather with the contracts the state chooses to write. If the state were to impose different contract terms—terms that were tied to successful results, not just to the number of people held—then private firms would have an incentive to focus on improving the outcomes of the people held in their facilities. Two prisons, one in Australia and the other in New Zealand, have adopted contracts along these lines in recent years. While there have certainly been some initial struggles, these prisons suggest that contracts that encourage private firms to focus directly on reducing recidivism are feasible–and in fact may be easier to implement for private prisons than for public ones.

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