Private Operation With Public Supervision: Evidence Of Hybrid Modes Of Governance In Prisons

Abstract

Received theory (e.g. Hart, Shleifer, Vishny, 1997) suggests that the participation of private actors in the operation of public services (such as prisons) might create incentives for cost reduction at the expense of service quality. Given that the quality of correctional services is difficult to specify in contracts (e.g., the level of assistance to inmates), quality-enhancing initiatives may be neglected by private managers. We claim that private provision of public services by means of a “hybrid” mode – in which state-appointed supervisors are responsible for monitoring the operations of a private agent – does not experience such trade-off. We develop a model to describe the underlying mechanisms supporting such hybrid governance and conditions in which private operation with public supervision will be able to achieve satisfactory quality levels while still preserving incentives for cost reduction. Our model is supported by quantitative and qualitative evidence from prisons in Brazil. We observe that privately operated facilities by means of hybrid governance exhibit not only lower costs, but also superior service quality based on a broad set of performance indicators (order, security and services offered to inmates). We discuss implications for theory and for public policy in the context of public services.