Do Private Prisons Really offer Savings Compared with their Public Counterparts?
Version of Record online: 6 FEB 2013
© 2013 The Authors. Economic Affairs © 2013 Institute of Economic Affairs. Published by Blackwell Publishing, Oxford
Volume 33, Issue 1, pages 93–107, February 2013
How to Cite
Kish, R. J. and Lipton, A. F. (2013), Do Private Prisons Really offer Savings Compared with their Public Counterparts?. Economic Affairs, 33: 93–107. doi: 10.1111/ecaf.12005
- Issue online: 6 FEB 2013
- Version of Record online: 6 FEB 2013
Private contracting of public services has been alleged to reduce costs. We address the critical question of whether private contracting really saves money, using the US prison privatisation experience as an example. Although the consensus in the literature identifies such savings, we raise economic issues of incomplete contracting, asymmetric information and moral hazard, which complicate matters. We discuss explicit, implicit, and agency costs that show that measuring the savings and quality impact of private contracting is more challenging than the literature suggests, and often inconclusive. This may suggest caution in designing solutions to cost pressures.