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Do Private Prisons Really offer Savings Compared with their Public Counterparts?
Author(s) -
Kish Richard J.,
Lipton Amy F.
Publication year - 2013
Publication title -
economic affairs
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.24
H-Index - 18
eISSN - 1468-0270
pISSN - 0265-0665
DOI - 10.1111/ecaf.12005
Subject(s) - moral hazard , agency (philosophy) , prison , quality (philosophy) , public economics , business , private information retrieval , agency cost , economics , law and economics , actuarial science , finance , microeconomics , incentive , computer security , law , political science , sociology , computer science , social science , philosophy , corporate governance , epistemology , shareholder
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.