Why do states privatize their prisons?

Why Do States Privatize their Prisons? The Unintended Consequences of Inmate Litigation.” (Job market paper).
The United States has witnessed privatization of a variety of government functions over the last three decades. Media and politicians often attribute the decision to privatize to ideological commitments to small government and fiscal pressure. These claims are particularly notable in the context of prison privatization, where states and the federal government have employed private companies to operate and manage private correctional facilities. I argue state prison privatization is not a function of simple ideological or economic considerations. Rather, prison privatization has been a (potentially unintended) consequence of the administrative and legal costs associated with litigation brought by prisoners. I assemble an original database of prison privatization in the US and demonstrate that the privatization of prisons is best predicted by the legal pressure on state corrections systems, rather than the ideological orientation of a state government. PDF of most recent version here, comments welcome.​ Appendix here.

Do Private Prison Companies Suffer When Inmates Win Lawsuits? The central claim of my dissertation argues it is the advent of inmates’ rights and rising prisoner litigation that contributed to the rise of prison privatization in the state. A separate dissertation chapter considers this relationship from the viewpoint of the business: is it the case that the economic future of the company is vulnerable to the announcement of successful court orders? I use event study methodology and find I find that on aggregate, investors are not particularly concerned with these judicial decrees. Rather, investors respond to the lawsuits in those states that are the most consequential for private prison firms’ business. This chapter fleshes out the behavior of private prison companies and provides further empirical evidence for the central claim of the dissertation, that private prison firms are indeed vulnerable to the announcement of court orders.

Those are new papers by Anna Gunderson, Ph.D candidate in political science from Emory, starting at Louisiana State, and I note she just won the Elinor and Vincent Ostrom award from the Public Choice Society.  Here is her home page.


'Why do states privatize their prisons?'

A public choice economist poses this question? Really?

Let us start with the basics - to allow a business to make a profit using taxpayer money.

And that simplistic take explains variation and timing how, exactly?

That it takes a while to strategically donate to elected officials, or to create 'grassroots' movements talking about how privatization is a good way to save money through the efficiencies of taking taxpayer money and giving it to private corporations, who profit from such beliefs.

Still having problems with the basics, it seems. Well, plenty of people at the Mercatus Center will happily let you know how it works, assuming they trust you to peek behind the curtains, as long as you don't tell other people how it works.

Yeah, none of that explains variation or timing. It says "there should probably be some variation among states and within states over time." Since pretty much all the factors you said are more or less constants (as are incentives to rent seek).

The scholar in question's work tries to say "under these conditions the likelihood of prison privatization increase markedly."

I get what public choice would say based on its neat theories. I am saying those theories overpredict privatization, and can't get at timing. This person has some research addressing both of those issues. Why's that worth crapping on it?

Capitalism is the greatest driver of opportunity!

Government works cost a lot, more than twice what it costs a private business for the same job. Simple as that.

'more than twice what it costs a private business for the same job'

Strangely, that is apparently not true when it comes to prisons - 'In-depth research from Arizona found that inmates in the state’s for-profit prisons rarely cost less than those in state-run prisons, and in some cases cost as much as $1,600 more per year. The research also showed that private prisons can push down their costs by refusing to accept prisoners with severe illnesses or a history of violence (an option not afforded to state-run institutions). This helps the facility spend less on medical care and security, while these high-cost inmates are forced into state prisons and paid for by taxpayers. A report released by the ACLU revealed similar findings in Hawaii, New Jersey, and Florida.' http://www.justicepolicy.org/news/12006

And though I recognize you might be offended to click on an ACLU link, considering how they defend the free speech rights of Nazis, here is the ACLU link - https://www.aclu.org/files/assets/bankingonbondage_20111102.pdf

What I had intended to say was government workers cost twice what the same worker costs in private business. And THAT IS true. Ask Illinois who is going bankrupt because of the cost of public workers.

Because they are cucks!

Stoicism. Joe Lonsdale is the founder of Palantir, the data analytics firm. Mr. Lonsdale became friends with Peter Thiel, who invested in Palantir, which has been subject to criticism for its work supporting surveillance and predictive policing. Lonsdale, like Thiel, is a critic of social justice warriors, and is fighting back. He recently founded the Cicero Institute. So what does this have to do with Stoicism?

An ancient Greek school of thought, Stoicism argued that the only real treasures in life were inner virtues, like self-mastery and courage. The Stoics offered tactics to endure pain and pleasure without complaint.
These virtues are paraded on the Cicero Institute's website. The landing page is adorned with a quote from Cicero, a Roman philosopher-statesman who embraced much of Stoicism’s ethical systems while remaining skeptical of its metaphysics: “I have always been of the opinion that unpopularity earned by doing what is right is not unpopularity at all but glory.”

But how does Stoicism connect to Silicon Valley? Stoicism is the ideal "operating system" for the high-stress environment of the Valley. Many of the leading lights there follow Stoicism by practicing self-denial tactics, like fasting, meditation, and cold baths. “So much of Stoicism is about achieving interior tranquillity,” according to Ada Palmer a leading authority on Stoicism. Stoics believed that everything in the universe is already perfect and that things that seem bad or unjust are secretly good underneath. The philosophy is handy if you already believe that the rich are meant to be rich and the poor meant to be poor.

“The new popularity of Stoicism among the tech crowd is, in my view, strikingly similar to Stoicism’s popularity among the powerful elites of ancient Rome,” Dr. Palmer said. “As Rome took over, it surged in popularity because it was the one system of ethics that worked well for the rich and powerful.”

So what's the connection to privatizing prisons? According to Lonsdale, the Cicero Institute will fight for business opportunities of entrepreneurs by focusing on deregulation, with special attention paid to making it easier to build start-ups around prisons, health care and education. Mr. Lonsdale proposes that “private prison contracts tie financial incentives to performance measures,” for instance.

Cicero, for his part, retired, but then re-entered the ancient political arena when he saw rising corruption. He was ultimately killed for it. Of the institute’s mascot, Dr. Palmer said: “They’ve chosen the one who comes out of inaction when there’s a crisis to try to prevent a coup.” Of the institute’s mascot, Dr. Palmer said: “They’ve chosen the one who comes out of inaction when there’s a crisis to try to prevent a coup.” https://www.nytimes.com/2019/03/26/style/silicon-valley-stoics.html

So much for Stoicism. My practical view is that privatizing prisons was in response to the explosion in the prison population, cuts in taxes, and avoidance of responsibility for the result. I worked for a state legislature at the height of the get tough on crime era, which meant longer prison sentences and mandatory minimum sentences. Part of my job was to give an estimate of the cost, which I determined by multiplying the daily cost of a prisoner by the difference between the current average sentence for the particular crime and the additional sentence under the proposed legislation. My estimate was met with howls of protest, the sponsors of the tough on crime measures arguing that I did not understand that crime would plummet as a result of the measures. Well, crime didn't plummet, and the prison population exploded. What to do? Punt. Turn over the prisons to private companies and let them figure out how to maintain a growing prisoner population with a fixed or falling revenue base. The result was predictable: cut prison staff and let the chaos begin. Where some (state legislators) see responsibility to be avoided, others (Palantir) see opportunity. Cicero, indeed. [An aside, some view Jesus as a Stoic philosopher. Not sure about His views on privatization of prisons.]

$$$ .... because private-business can typically perform functions at half the cost of government run operations.

the specific problem here with private prisons is that private workers don't have the general "sovereign legal immunity" corruptly granted to government workers/agencies.

Everyone is equal before the law -- except if you work for the government.

The government thrives on legal immunity for its hands-on "enforcers".
Low-level TSA workers have recently been granted outrageous levels of immunity for their mass violations of the 4th Amendment... private airport searchers would not do as well in litigation.

Here is a link to OpenSecrets which collects data on campaign contributions and lobbying by private prison corporations.


Using only data collected from public sources, and data that has to be reported,
"In the 2016 election cycle, private prisons gave a record $1.6 million to candidates, parties and outside spending groups. That was nearly triple what they'd given in 2014 and more than double their contributions in the 2012 presidential cycle. Most of the increase came in the form of donations to outside groups, and Geo Group was responsible for most of that: It gave $300,000 to super PACs backing various Republican presidential candidates, including one backing now-President Donald Trump.

Of the 2016 contributions that went to candidates or parties, 85 percent went to Republicans. That's higher than in most previous cycles, but consistent with the conservative leanings of this industry. Since 1990, private prisons have given 73 percent of their total party-and-candidate contributions to Republicans.

Including its super PAC gifts, GEO Group was the top contributor from the industry by far in the 2016 election cycle, giving more than $1.2 million.

Private prisons' outlays for lobbying were the highest in nine years -- $2.75 million -- as the industry tried to fight back against then-President Obama's efforts to make less use of their facilities. Here, CoreCivic (formerly Corrections Corp. of America) led the spending with about $1.1 million devoted to lobbying."

Lobbying can take other forms: Like, where shall I locate that prison facility and the jobs that come with it....What do you think, Representative X.

Outsourcing to minimize legal risk and liability? A quite common strategy for "corporations", very interesting if the government applies it.

If outsourcing really works, why not apply it to education? Are legal risks lower in schools? Are the rights of students respected systematically, thus relatively few lawsuits?

I think lawsuits by themselves is no the driver. The main driver is politicians dodging responsibility on prisoner management. Before private prisons, if there was a problem a politician head fell. With private prisons, it's easier to blame the contractor. If something goes awry, the politician promises to cancel the contract, find a new contractor and the politician stays in place. Outsourcing prisons is a great solution to not bare with the consequences of problems.

Wouldn't it be easier to just pass a law to put a max payout on prisoner lawsuits?

So instead the government now gets sued for the unintended consequences of allowing prisons to be nationalized. Net benefit: negative. Nationalize and reform the prison system already. The entire civilized world shows that actually works.

Private prison guards make much less than government guards. Payroll seems to be discounted in the paper. The author makes her sympathies for CCPOA evident, nevertheless the sweetheart contract Newsom will deliver the guard union in July will amply illustrate the budgetary reason a smart state legislature would need to keep salary negotiations out of political hands. https://www.sfchronicle.com/bayarea/philmatier/article/Calif-prison-guards-make-nice-with-Newsom-pull-13621043.php

I always find it interesting for an economist to raise a question of why government would perform a function which it would be the only person to purchase that good or service.

Ever heard of vertical integration. Ever heard of problems with defining terms of contracts, etc. How about a little bit of Ollie Williamson. And, in the case of government, making and holding representatives responsible and accountable because they run the institution, not some corporation.

Overrated: the impact of private corporations in America's prison-industrial complex. Underrated: the influence of the vast number of people employed in all prisons, private and public.

As John Pfaff (prob the pre-eminent dude to follow on these things) said on twitter, "Privates are 8% of the prison population.

Private prison profits are abt $300M. Public sector wages are about $30-as-in-billion.

The problem isn’t a shadowy cabal of private executives. It is us. And what we demand of the public sector in our name."

The prison industry employs a significant number of highly-qualified people in a very necessary job. You can be one of those people, if you're good enough.

For those wanting a different academic take on privatized prisons, this is a link to my Fordham Urban Law Journal article. Somewhat long, but a different perspective than most on the costs of privatization in the correctional context.


I think it has to do with pensions and other benefits. May towns are outsourcing fire departments.

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