To,

Government officials,
Country X.

While evaluating privatization of the country’s prison/ correctional facilities system, it

remains critical to look at the economic and political trade-offs generated. Broadly
speaking, the biggest argument for privatizing prison systems is the savings in
operational costs - brought in by private firms operating more efficiently than
government departments.
Economic perspective
Privatizing prisons really means contracting the construction and/or maintenance/
running of new/ existing correctional facilities at the central or state levels. From an
economics point of view, open contracts offered to the market would generate
competition. Competitive biding would help bring down the cost at which these facilities
would be built and run. Furthermore, the contracts with private prisons may be
structured in a manner that incentivizes them to perform efficiently in order to maintain
good standing with the government. Primary reasons for private firms being relatively
more cost effective include innovations in their operating model, reduced financial
obligations towards their prison employees (healthcare and other benefits), etc. Private
firms claim that modernizing existing prison facilities (with over 100K beds in the US
being over 100 years old) often offer the first level cost savings that the government can
benefit from. These savings may ultimately deliver capital for investment in other social
initiatives or the lowering of tax payable by the relevant sections of society.
On the flip side, privatizing prisons could encounter several problems. Principal agent
issues abound where the government is essentially outsourcing the administration of
corrections to a private profit-motive driven firm. Despite the expectation of free market
competition driving costs/ price of contracts down, the US ground reality tells us that
oligopolies dominate the private prison market. In the US, the 3 largest prison firms
account for over 96% of all private prison beds1. As a result, contract mechanisms fail to
realize true potential savings that the government could achieve. Also, these private
“contractors” enter into ~20 year long contracts with state or central governments. In
doing so, the government is entering into asset specific investment with the firm (as it is
often hard and time consuming to renegotiate new contracts with other firms
immediately and correctional facilities/service down time could hamper the entire
system). As a result, firms are incentivized to “hold-up” the government and ultimately
provide sub-optimal value at the same contract winning price. The aftermath of this
could be prison overcrowding, cutting corners on safety protocols and a lackadaisical
attitude towards curbing crime/violence within the prison premises 2

1
https://www.brookings.edu/wp-
content/uploads/2016/10/es_20161021_private_prisons_economics.pdf
2
https://www.salon.com/2013/09/23/6_shocking_revelations_about_how_private_prisons_make
_money_partner/
A significant portion (~65%) of prison contracts have clauses around occupancy rates at
their facilities3. This could lead to a “Hotel California” syndrome, create poor
environments for inmates, failure to provide corrections needed by inmates, charge
vague fees indebting inmates and being incentivized to encourage recidivism.
Recidivism means the actual economic cost per imprisoned individual is higher (for
repeat offenders could even be double or more) that originally thought and could
potentially wipe out the savings envisioned while employing private prison firms.
Political perspective
All states and the central governments need to maintain correctional facilities.
Privatizing these facilities essentially improves land utilization in the regions as well as
promotes private employment. There are added benefits in terms of higher quality of
professional development opportunities offered by private prisons as compared to state-
run ones4. These could mean that correctional facilities managed by private firms better
train inmates to become productive members of society. They are able to do this due to
the reduction in bureaucratic red-tape that plagues operating procedures at public
corrections facilities. From a policy perspective this could be beneficial to incumbent
government as they are trying to create a safe non-violent society.
However, profiteering by private firms continues to threaten these benefits. “Pay-to-
Stay” policies are further exacerbated by private prison systems, which put prison
inmates in debt.5 Cutting corners by private firms means that the government has to
bear several hidden costs. For example, investigations and lawsuits following poor
prison practices by private firms could mean millions in legal expenses.
Moreover, private firms often have retired senators and judges on their board. These
agents have tremendous influence within government networks further jeopardizing the
independence required by the government in performing its duties. These could have
serious ramifications for the government with private firms lobbying for specific policy
measures that eases their business concerns or even protects them from market
factors.
Finally, the level of violence at private prisons private prisons could exceed that of
public prisons (due to the cost cutting and overcrowding). In such a scenario it is
important to consider that only the state should have monopoly over legitimate us of
violence6. In considering this, while private firms might think of inmates in terms of
occupancy rates, it is important for the government to think about the societal costs and
benefits of offering optimal correctional services to inmates and as a result indirectly to
society.

3
https://www.attn.com/stories/941/who-profits-from-prisoners
4
https://www.brookings.edu/wp-
content/uploads/2016/10/es_20161021_private_prisons_economics.pdf
5
https://www.brennancenter.org/states-pay-stay-charges
6
Max Weber, Politics as a Vocation