Hazards of Probity: The Comparative Assessment of Governance

Abstract

Despite widespread use of private firms to deliver correctional services in the United States, little is known about the relative benefit of contracting in this context. This paper uses transaction cost economics to consider the provision of public goods by private firms when hazards of probity are high. We submit that writing and enforcing contracts to operate prisons in the public interest is challenging due to divergent incentives, and we highlight how private firms affect correctional outcomes. Preliminary results from both quantitative and qualitative analyses suggest that contracting out correctional services leads to quality shading, resulting in higher recidivism rates compared to public prisons. We provide an avenue for future research by reviewing existing empirical studies on the comparison between public and private prisons.