Markets in Everything: Pay to Stay

by on June 5, 2008 at 7:30 am in Economics, Law | Permalink

A small number of California jails have begun to offer pay to stay programs.  These programs allow inmates in for minor crimes to "upgrade" to a private or public jail with better facilities.  Evidently the fees are profitable to the jails.  Take a look at how Santa Ana county advertises it’s hotel jail.

The Santa Ana Jail is pleased to host a full range of alternatives to
traditional incarceration.  Our offerings include weekends in jail,
non-linear jail sentences, and a variety of work release options.  Our
philosophy is designed to allow our clients (!, AT) to serve their obligations
to the court in a manner that respects them as human beings and permits
them to continue to provide for themselves and their families….

  • Programs that include 2-day or 3-day weekends with minimal impact on
    the client’s professional life.  Work on Saturday and Sunday?  No
  • Programs that permit jail sentences to be served in multiple parts.
    Perfect for clients that live out of the area or clients with frequent
    business travel.
  • Programs that permit the client to leave jail for work everyday.  We
    have helped everyone from 9 to 5 business people to oil-rig workers, so
    no work schedule is out of the question.

The Santa Ana Jail is the
most modern and comfortable facility in the region.  Our housing areas
are a world away from cement and steel bars….

Most clients can be approved immediately, over the phone.  We can also provide same-day acceptance letters for the court.

I have mixed feelings about these programs.  On the one hand, someone has to pay for the jails and who better than the inmates?  And note that to make an inmate-pays program effective you have to give them an incentive to pay.

But on the other hand the profit-maximizing strategy for a monopolist with different quality levels of service is pretty scary in this context.  A profit maximizer will reduce the quality level of the lowest class service – perhaps even spending money (!) to make the quality level lower – in order to push people to pay for the higher quality.  (For more on the theory, see Hal Varian’s elegant explanation.)

On the other hand (I know, I know, three hands) California’s prison system is already so overcrowded, violent and dysfunctional that one federal judge referred to medical care in the CA system as "outright depravity," thus we may already be close to the lowest quality level.  See this classic MR post for an expert’s take on the incentives of private and public prisons.

More on pay-to-stay at a Michigan Law Review Symposium.  Hat tip to Timothy Taylor at the Journal of Economic Perspectives.

1 Speedmaster June 5, 2008 at 7:58 am

If it’s profitable … isn’t there an incentive to make the ‘free’ accommodations as unpleasant as possible?

2 Ned June 5, 2008 at 8:22 am

Governments are always looking for ways to maximize revenues, and this seems like a real winner. It could start out with the lowest level being something like the Black Hole of Calcutta and move all the way up to a suite at the Four Seasons, with the guards dressed as butlers and maids. Of course, the inmates would pay plenty for this level of incarceration, but, if they can afford it, who cares?

3 Brock June 5, 2008 at 8:50 am

Question for Prof. Tabarrok: Do you think the marginal prisoner is someone who ought to be incarcerated?

I suspect that the marginal prisoner is a minor drug offender, not a violent criminal. Since minor drug offenders shouldn’t be incarcerated, it follows that the price to the state of incarcerating the marginal offender isn’t high enough. So lowering that marginal price is nothing to be happy about.

4 aaron_m June 5, 2008 at 9:23 am

“one federal judge referred to medical care in the CA system as ‘outright depravity,’ thus we may already be close to the lowest quality level.”

It in no way follows from ‘medical services are an outright depravity’ that we are “close to the lowest quality level.” Of course there is tons of room for things to get worse, and the statement fails the #1 rule of analysis ‘try not to say things that are obviously wrong.’

5 indiana jim June 5, 2008 at 9:52 am


You are at least a 3 handed economist (you use the phrase “on the other hand”, again and again. . . )

6 Slocum June 5, 2008 at 10:13 am

Seems like kind of a Rube Goldberg scheme as compared to electronic monitoring. If these are non-violent minor criminals who can be released for work, then why not save the cost of the jails entirely and go with the ankle bracelets?

7 Sticky June 5, 2008 at 10:27 am

If prisons need more money, why doesn’t the legislature just impose much heavier mandatory fines on all sorts of criminal behavior? Sure, higher fines hurt the poor more than the rich, but Santa Ana’s system does as well.

8 Chris June 5, 2008 at 10:44 am

Wasn’t prison about punishment? Reading the passage above I somehow had the feeling that they might write about their whirlpool, tennis court and sauna in the very next sentence.

9 Nate June 5, 2008 at 11:01 am

I guess the same reason that we’ve not yet figured out that if we want to deter drug use the “cost” of jail time, court time, and a criminal record could be replaced with another cost, high taxes on drugs. Guess I’m expecting too much.

10 Oh, Billy! June 5, 2008 at 11:36 am

a) What KipEsquire said. All the prisons are operating under contract on behalf of the state. The state can therefore insert minimum service quality clauses with (effectively) infinite penalty rates.

b) I guess it all depends on what you’re seeking to achieve with the incarceration. Once the state decides that somebody has broken a law, it can seek to i) punish them; ii) offer a deterrence to other would-be criminals; iii) protect society from them if they are deemed to be dangerous; or iv) attempt to rehabilitate them.

While many people – and, in particular, the victims – would probably rank the options in that order, there’s nothing to say that the ordering presented is the social optimum.

Personally, I’d be more interested to see something mandating that that a high-school diploma (or equivalent) be obtained before anybody is allowed off parole and incentives be put in place for prisoners to work towards it while still incarcerated.

11 Thelonious_Nick June 5, 2008 at 11:54 am

What Peter said. Those few middle-class citizens who find themselves imprisoned are likely to be perceived as soft and find themselves specially targeted for physical violation. This is a way to avoid that. Of course, a well-run prison system wouldn’t have the gangs and other security problems that lead to such behavior in the first place, but apparently California isn’t willing to pay that kind of money.

12 Grant June 5, 2008 at 12:53 pm

Re: the incentives of private vs. public prisons, wouldn’t it be harder for interest groups representing public prison workers, builders, etc, to organize and lobby government than private prisons? It seems to me that private prisons would have an easier time getting their interests represented in government, due to lower organization costs.

13 Anonymous June 5, 2008 at 1:29 pm

This will only encourage white collar crime.

14 Alex Tabarrok June 5, 2008 at 1:51 pm

Grant, the union of public prisons guards in CA is one of the strongest interest group in the state and one of the biggest sources of campaign funds. The prison guard union sets up and funds groups of crime victims to lobby for harsher prison sentences, like three strikes, and against things like rehabilitation for drug users instead of prison time.

15 Anonymous June 5, 2008 at 3:02 pm

I want some of whatever Rich is smoking.

Issue 1: how a serial murderer can “pay restitution” to his (dead) victims.

And so on.

16 Rich June 5, 2008 at 3:19 pm

I’m not smoking anything. There’s historical precedent for such systems not only working, and working well, but working better than our present system in the prevention and suppression of violent crime. A murderer, serial or otherwise, should pay restitution to the heirs of his or her dead victims. There’s a vast body of research that’s been done into the privatization of law, security, and arbitration, much of it available online. David D. Friedman, a professor of law at the University of Santa Clara, has done perhaps the most work in this area in modern times, but his research into this area is by no means unique.

17 L2P June 5, 2008 at 4:10 pm

Grant, the union of public prisons guards in CA is one of the strongest interest group in the state and one of the biggest sources of campaign funds. The prison guard union sets up and funds groups of crime victims to lobby for harsher prison sentences, like three strikes, and against thigs like rehabilitation for drug users instead of prison time.


This is a jail, not a prison. There’s no corrections officers involved. Not a one. Jails are run by the sheriff.

And you know very well that you’re being deceptive here. You imply that simply because one union in one state has managed to get some political power, in general large economic actors such as private prison owners will have less political power than diffuse individuals like prison guards. We both know better than that.

18 Alex Tabarrok June 5, 2008 at 7:28 pm

L2P – the fact is that the public prison guard union is large, unified, and politically powerful – far more powerful than private prison firms. I second TGGP’s link to Sasha Volokh’s excellent article on this topic

19 Grant June 5, 2008 at 9:15 pm

Thanks TGGP and Alex.

Skimming the paper linked to by TGGP’s link, I do wonder how much of the public sector’s lobbying ability is tied to the undue power of unions. Without unions, I wonder if the relatively smaller number of capitalist beneficiaries from a rent-sought “public good” would lower transaction costs and make provision of that good easier.

20 The Eclecticist June 13, 2008 at 11:40 am

This has to be one of the dumbest ideas out there. If state prison systems are looking for ways to close budget gaps, they should simply charge every prisoner a means-tested fee for his or her stay. If the prisoner can afford it, the fee is equivalent to time spent in a luxury hotel. If the prisoner is indigent, the state pays. But the accommodations are exactly the same. Check out my post at

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