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NYU Law Review - Private Prisoner Rehabilitation Proposal, 2014

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WE TRIED TO MAKE THEM OFFER
REHAB, BUT THEY SAID, “NO, NO, NO!”:
INCENTIVIZING PRIVATE PRISON
REFORM THROUGH THE PRIVATE
PRISONER REHABILITATION CREDIT
CASSANDRE MONIQUE DAVILMAR*
Mass incarceration in the United States has led many state governments to hand
over the management and construction of prisons to private corporations, which
are able to meet demand more quickly and are perceived as more cost-effective.
There are approximately 100 private prisons housing about 62,000 inmates today,
and this number is expected to increase to 360,000 in the coming decade. Unfortunately, private prisons have failed to effectively address many of the issues pervasive in public prisons—namely recidivism, violence, and poor living conditions.
Furthermore, the government-customer has failed to effectively hold private prisons
accountable for their failures. As a solution this Note proposes the Private Prisoner
Rehabilitation (PPR) credit: a performance-based, refundable tax credit that incentivizes private prisons to address some of the key issues plaguing the criminal justice system.

INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
I. THE U.S. PRISON SYSTEM AND ITS FAILURES . . . . . . . . . . .
A. Prison Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
B. Prisoner Quality of Life . . . . . . . . . . . . . . . . . . . . . . . . . . . .
C. Recidivism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
II. THE BUSINESS DYNAMICS OF PRIVATE PRISONS
COMPOUND THE PROBLEMS COMMON TO THE U.S.
PRISON SYSTEM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
A. Interest Divergence Between Customer and
Shareholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
B. The Impact of Interest Divergence on Prison
Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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* Copyright © 2014 by Cassandre Monique Davilmar. J.D., 2013, New York University
School of Law; B.S., 2010, University of Miami. Thank you to the Creator of the Universe
for His blessings; please continue to order my steps toward Your will. Thank you to my
beautiful mother, Wilberte Davilmar, for inspiring me to write this piece. Her intense love
for me is all the motivation I need to be the best human I can possibly be. For their
thoughtful comments and support, many thanks to my good friends and colleagues, Ihsan
Saleem, Tumi Adebiyi, Anthony Enriquez, Michele Yankson, Jon Shields, Yan Cao,
Lauren Gambier, David Willard, and Dana Adams. For their amazing comments and dedication to my piece, thank you to my editors, Cristian Kelly, David Leapheart, Zachary
King, and Seth Allen. Lastly, thank you to all the hard-working members of the New York
University Law Review, particularly the diligent, awe-inspiring Fourth Line department.
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C. Compounding Disincentives . . . . . . . . . . . . . . . . . . . . . . . . .
III. SOLUTIONS FOR REDUCING RECIDIVISM IN THE
PRIVATE PRISON SYSTEM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
A. Incentivizing Corporate Behavior Through
Refundable Tax Credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
B. Proposal: PPR Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1. Framework for the PPR Credit . . . . . . . . . . . . . . . . .
2. Feasibility and Accountability . . . . . . . . . . . . . . . . . . .
a. Feasibility of Outcomes . . . . . . . . . . . . . . . . . . . . .
b. Economic Feasibility . . . . . . . . . . . . . . . . . . . . . . . .
c. Political Feasibility . . . . . . . . . . . . . . . . . . . . . . . . . .
d. Program Accountability . . . . . . . . . . . . . . . . . . . .
3. The PPR Credit Is Better Than Other
Alternatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
a. Social Impact Bonds . . . . . . . . . . . . . . . . . . . . . . . .
b. Contractual Terms . . . . . . . . . . . . . . . . . . . . . . . . . .
CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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“It’s not necessarily that privatization is bad . . . . It’s about the way
that the profit motive influences policy.”
—Emily Tucker, Advocacy Policy Director, Detention Watch1

INTRODUCTION
Alex Friedmann2 spent six years in Tennessee’s South Central
Correctional Facility, a facility operated by the Corrections
Corporation of America (CCA).3 He was sentenced to ten years in
1 Hannah Rappleye, Profiting from Prisons, THE CRIME REPORT (Feb. 14, 2012, 11:18
PM), http://www.thecrimereport.org/news/inside-criminal-justice/2012-02-profiting-fromprisons.
2 Friedmann has dedicated his life to prisoners’ rights and criminal justice reform. He
is now an editor for Prison Legal News and a head of the nonprofit watchdog Private
Corrections Institute. James Ridgeway, Ex-Con Shareholder Goes After World’s Biggest
Prison Corporation, MOTHER JONES (May 10, 2012, 12:01 AM), http://www.motherjones.
com/politics/2012/05/ex-con-alex-friedmann-cca-private-prison-rape.
3 Id. The Corrections Corporation of America (CCA) is the largest player in the U.S.
privatized prison industry. PHILIP MATTERA, MAFRUZA KHAN & STEPHEN NATHAN,
CORRECTIONS CORPORATION OF AMERICA: A CRITICAL LOOK AT ITS FIRST TWENTY
YEARS 1 (2003), available at http://grassrootsleadership.org/sites/default/files/uploads/CCA
AnniversaryReport.pdf; DAVID SHAPIRO, AM. CIVIL LIBERTIES UNION, BANKING ON
BONDAGE: PRIVATE PRISONS AND MASS INCARCERATION 12 (2011), available at http://
www.aclu.org/files/assets/bankingonbondage_20111102.pdf. CCA currently operates sixtyseven correctional facilities, including forty-seven facilities that it owns. CORR. CORP. OF
AM., 2012 ANNUAL REPORT ON FORM 10-K 5 (2013) [hereinafter CCA 10-K]. CCA’s facilities are capable of housing approximately 92,500 inmates in twenty states and Washington,
D.C. Id. I refer to CCA frequently simply because it is the most prominent private prison
company in the United States. I also discuss The GEO Group, Inc. (GEO), which is the

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prison for attempted murder, armed robbery, and attempted aggravated robbery.4 Alex Friedmann now owns a modest $2000 worth of
stock in the company that operates the very correctional facility in
which he was once imprisoned.5 As an activist shareholder,6
Friedmann recently submitted a controversial resolution tackling the
issue of rape in CCA’s prisons.7 Friedmann’s actions exemplify an
unconventional strategy in private prison reform: He has chosen to
work within the corporate framework, identifying areas where his
policy goals and the corporation’s profit motive may be aligned.
U.S. prison privatization in the modern era began in 19798 when
the U.S. Immigration and Naturalization Service contracted with privately owned companies to house immigrant detainees facing hearings
and deportation.9 These contracts eventually ushered in the contemporary private-prison movement.10
In the mid-1980s, as state governments began contracting with
private firms for prison management, the nation entered a debate concerning “the legality, propriety, and desirability of private
second-largest private provider of correctional and detention facilities worldwide. GEO
GRP., INC., 2010 ANNUAL REPORT 11 (2010) [hereinafter GEO ANNUAL REPORT]; About
Us, GEO GRP., INC., http://www.geogroup.com/about_us (last visited Jan. 29, 2014) (noting
that, internationally, GEO owns and/or manages ninety-six correctional facilities with
about 73,000 beds).
4 Ridgeway, supra note 2.
5 Id.
6 For a discussion on shareholder activism, see generally LISA M. FAIRFAX,
SHAREHOLDER DEMOCRACY: A PRIMER ON SHAREHOLDER ACTIVISM AND
PARTICIPATION (2011).
7 Ridgeway, supra note 2. The Prison Rape Elimination Act, 42 U.S.C. § 15601 (2006),
informed Friedmann’s resolution. See Ridgeway, supra note 2 (noting that Friedmann
believes CCA-run institutions have failed to comply with all mandates of the federal law).
Congress voted unanimously on the Act, which President Bush signed, mandating the comprehensive collection of prison rape data as well as a “zero tolerance policy” among detention facilities. Id. In his resolution, Friedmann noted that “[a] failure by the Company to
adequately address this issue, and the negative publicity, loss of business and litigation that
results, constitutes a risk to the Company and a threat to shareholder value.” Id. Unfortunately, CCA’s board of directors and shareholders voted down the resolution. Press
Release, HUM. RTS. DEFENSE CTR., CCA Prison Rape Shareholder Resolution Gains Over
18% of Voting Shares (May 14, 2012), available at http://www.ncdsv.org/images/HRDC_
CCAPrisonRapeShareholderResolutionGainsOver18PercentVotingShares_5-14-2012.pdf.
8 Various forms of privatization, sometimes involving forced labor, existed in the U.S.
and U.K. in the eighteenth and nineteenth centuries. See DOUGLAS MCDONALD ET AL.,
PRIVATE PRISONS IN THE UNITED STATES: AN ASSESSMENT OF CURRENT PRACTICE 4
(1998) (detailing the growth of private juvenile offender facilities in nineteenth-century
New York City); SHAPIRO, supra note 3, at 10 (describing privately run prisons in
eighteenth-century England and the post–Civil War convict lease system in the U.S.).
9 MCDONALD ET AL., supra note 8, at 5.
10 Id.

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imprisonment.”11 The “War on Drugs” was in full swing.12 Mandatory
minimum sentencing, “truth in sentencing,” and “three strikes” laws
helped the U.S. attain the highest incarceration rate in the world.13
Existing federal and state prisons did not have the capacity to meet
demand. Prisoners were “sleeping in hallways, day rooms, gymnasiums, [and] sometimes even in bathrooms, or were doubled up in
small cells.”14 Governments were in a bind: Voters wanted tougher
crime laws, but they also wanted government spending to decrease.
Private prisons appeared to be the solution.15
Various states have pursued prison privatization as a “low-cost”
solution to rising incarceration rates.16 In the United States, there are
approximately 100 private prisons housing about 62,000 inmates; that
number is expected to increase to 360,000 in the coming decade.17
The effectiveness of private prisons is usually measured in terms
of financial cost-benefit analysis.18 However, the results have been
largely inconclusive.19 Though some studies have found private
11 Id. at 6. Even though many associations and agencies were opposed to prison privatization, the opposition could not withstand the growing demand for prison facilities. See
id. (analyzing the debate surrounding correctional privatization).
12 See MACQUARIE RESEARCH EQUITIES, CORRECTIONS CORP OF AMERICA 5 (2008)
(“We link the sharp rise in the US inmate population over the past three decades to: the
US ‘War on Drugs’ campaign of the 1980s; the passage of mandatory sentencing and the
‘three strikes law’ in the 1990s; and tough post-9/11 immigration laws.”) (on file with the
New York University Law Review).
13 Id.; SHAPIRO, supra note 3, at 10–11; Eric Schlosser, The Prison-Industrial Complex,
ATLANTIC MONTHLY, Dec. 1998, at 56, available at http://cooley.libarts.wsu.edu/schwartj/
pdf/schlosser.pdf.
14 MCDONALD ET AL., supra note 8, at 8.
15 Id.
16 See id. (noting that most privatized prisons do not replace existing public prisons, but
instead satisfy the demand for the increasing prison population).
17 Vicky Pelaez, The Prison Industry in the United States: Big Business or a New Form
of Slavery?, GLOBAL RESEARCH (Jan. 31, 2013), http://www.globalresearch.ca/the-prisonindustry-in-the-united-states-big-business-or-a-new-form-of-slavery/8289 (“Ten years ago
there were only five private prisons in the country, with a population of 2,000 inmates;
now, there are 100, with 62,000 inmates.”).
18 See, e.g., MCDONALD ET AL., supra note 8, at 33, 47 (analyzing the cost savings of
private prisons); DAVID W. MILLER, THE DRAIN OF PUBLIC PRISON SYSTEMS AND THE
ROLE OF PRIVATIZATION: AN ANALYSIS OF STATE CORRECTIONAL SYSTEMS 2, 12–13
(2010), available at http://www.csa.com/discoveryguides/prisons/review.pdf (using a costbenefit analysis to compare private prisons to state-run prisons); see also James F.
Blumstein, Mark A. Cohen & Suman Seth, Do Government Agencies Respond to Market
Pressures?: Evidence from Private Prisons, 15 VA. J. SOC. POL’Y & L. 446, 450–51 (2008)
(discussing the role of economic analysis in private prison studies); Richard A. Oppel Jr.,
Private Prisons Found to Offer Little in Savings, N.Y. TIMES, May 19, 2011, at A1 (noting
that cost savings has been the main focus of privatized prison evaluations and that it is
unclear whether or not private prisons are in fact cheaper than public prisons).
19 See PAUL ASHTON & AMANDA PETTERUTI, JUST. POLICY INST., GAMING THE
SYSTEM: HOW THE POLITICAL STRATEGIES OF PRIVATE PRISON COMPANIES PROMOTE

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prisons to be cost reducers, there are also studies that have found private prisons to be cost drivers.20 Regardless of whether private prisons
are more cost-effective than public prisons, the growing demand for
prison services has led many state governments to hand over the management and construction of prisons to the private sector, which has
been better able to meet demand at a faster pace.21
Given that prisons carry out a complex public function,22 these
private corporations should be incentivized not only to decrease the
monetary costs of prisons, but also to address key issues plaguing the
criminal justice system, particularly recidivism and its causes—some
of which can be traced to prisons themselves.23 Unfortunately, private
prisons have failed to remedy many of the issues pervasive in public
INEFFECTIVE INCARCERATION POLICIES 6 (2011), available at http://www.justicepolicy.org/
uploads/justicepolicy/documents/gaming_the_system.pdf (“Despite no conclusive evidence
in the cost savings of private corrections, and growing evidence of significant collateral
expenses borne by the public of incarcerating people in private prisons, the trend of forprofit prison privatization continues.”); SHAPIRO, supra note 3, at 6 (noting that the “evidence for supposed cost savings is mixed at best”).
20 See, e.g., CHARLES L. RYAN, ARIZ. DEP’T OF CORR., FY 2010 OPERATING PER
CAPITA COST REPORT: COST IDENTIFICATION AND COMPARISON OF STATE AND PRIVATE
CONTRACT BEDS 3 (2011), available at http://www.azcorrections.gov/adc/reports/ADC_
FY2010_PerCapitaRep.pdf (revealing neutral and negative cost savings from in-state contract beds); see also U.S. GOV’T ACCOUNTABILITY OFFICE, GAO/GGD-96-158, PRIVATE
AND PUBLIC PRISONS: STUDIES COMPARING OPERATIONAL COSTS AND/OR QUALITY OF
SERVICE 2–3 (1996), available at http://www.gao.gov/archive/1996/gg96158.pdf (concluding
that a multistate comparison of operational costs yielded mixed results and offered “little
generalizable guidance for other jurisdictions about what to expect regarding comparative
operational costs and quality of service if they were to move toward privatizing correctional facilities”); KEVIN PRANIS, PRIVATE CORR. INST., COST-SAVING OR COST-SHIFTING:
THE FISCAL IMPACT OF PRISON PRIVATIZATION IN ARIZONA 7–9 (2005), available at http://
www.prisonpolicy.org/scans/AZ_PP_Rpt_v4.pdf (arguing that there is little evidence of
cost-savings by private prisons and the reports available fail to take into account material
factors that affect costs); Oppel Jr., supra note 18, at A4 (noting that research financed by
private prison companies often shows private prisons to be cost reducers).
21 See MACQUARIE RESEARCH EQUITIES, supra note 12, at 1, 9 (noting that, due to
heavy demand, state governments are often forced to outsource to private prison companies who are better able to build facilities ahead of demand).
22 There are many philosophies on the purpose of incarceration. Rationales include
rehabilitation, retribution, and utilitarian ideals. See Joycelyn M. Pollock, The Rationale for
Imprisonment, in PRISONS: TODAY AND TOMORROW 3, 3–8 (Joycelyn M. Pollock ed., 2d
ed. 2006) (outlining retributive and utilitarian approaches to punishment).
23 This Note assumes that, first and foremost, corporations exist to create profits for
their shareholders. They aim to minimize costs because cost cutting expands profit margins.
It is therefore desirable, where corporations are hired to fulfill a traditional government
function, to utilize corporate cost-cutting expertise in ways that benefit both the government-customer (or society) and the shareholder. This Note advocates using the power of
corporate profit-seeking to prevent the negative externalities currently created by private
prisons. For more discussion, see infra Part I. Furthermore, throughout this Note, I focus
on recidivism as an ill that private prisons have failed to solve. I take the position that
prison inefficiencies, such as poor prisoner quality of life and inadequate rehabilitation
programs, contribute to high recidivism, and therefore should be corrected to reduce

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prisons; the government-customer, meanwhile, has failed to effectively hold private prisons accountable.24 With these shortcomings in
mind, stakeholders in affected states should ask themselves: (1) Why
are private prisons, as structured, unable to satisfy societal expectations? and (2) How can the private prison system be restructured to
remedy these issues?
There is little academic literature discussing methods of aligning
private prison incentive structures with the needs of society as a
whole.25 This Note seeks to fill that void by arguing that the
performance-based, refundable Private Prisoner Rehabilitation (PPR)
credit is a viable tool to align incentives between private prison companies and government-customers.26
Part I of this Note discusses in more detail the key issues facing
U.S. prisons. Part II identifies the current conflicting incentives within
the private prison enterprise, while proposing that policymakers can
improve private prisons through incentive alignment. Part III argues
that the government-customer should consider the PPR credit as a
viable solution to the misaligned interests of private prisons.
I
THE U.S. PRISON SYSTEM

AND

ITS FAILURES

In the United States, state and federal governments attempt to
balance the goals of retribution, utilitarianism, and rehabilitation in
forming and operating the prison system.27 In recent years, retribution
and utilitarianism—reflected in harsher sentencing laws and a broader
recidivism. For further discussion on how PPR credits can help decrease recidivism in the
long-run, see infra Part III.
24 See infra Part II.C (discussing the disincentives government actors face for exercising
effective oversight over private prisons).
25 Though some pieces offer solutions primarily rooted in regulations and contracts,
they fail to consider other incentive-aligning strategies. See, e.g., Lisa M. Fairfax, Achieving
the Double Bottom Line: A Framework for Corporations Seeking to Deliver Profits and
Public Services, 9 STAN. J.L. BUS. & FIN. 199, 201 (2004) (discussing privatization in a
positive light and suggesting government regulation and monitoring as solutions to ensure
corporations are serving the public interest while making a financial profit); Martin E.
Gold, The Privatization of Prisons, 28 URB. LAW. 359, 397–99 (1996) (arguing that with
proper contracting, privatization can be very beneficial). Many academics have also called
for an end to private prisons. See, e.g., Patrice A. Fulcher, Hustle and Flow: Prison
Privatization Fueling the Prison Industrial Complex, 51 WASHBURN L.J. 589, 614 (2012)
(“[I]n the face of such inequities, a nation-wide moratorium on prison privatizations is
paramount. The solicitation of new private prison contracts must end and current contractual obligations should be fulfilled but not renewed.”).
26 See infra Part III.B. The PPR credit is my innovation. In this Note, I argue that it is a
simple tool to help align the incentives of private prison shareholders with the needs of
society.
27 See Pollock, supra note 22, at 3–11 (discussing the rationale behind imprisonment).

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characterization of what constitutes a crime—have been prominent in
policy.28 Unfortunately, U.S. prisons have largely failed to address the
goal of rehabilitation. The advent of private prisons has entrenched
this shortcoming, and private prisons have yet to meaningfully lower
recidivism.29
The following Subpart discusses how private prison effectiveness
has been measured in terms of short-term financial benefits, without
appreciation for other externalities30 that affect the overall value of
prison privatization. The remaining Subparts discuss these externalities in more detail.
A. Prison Costs
Prison costs are a burden to federal, state, and local governments,
as well as to taxpayers. Overall, corrections costs have almost quadrupled over the past twenty years.31 Currently, prisons cost taxpayers
about $39 billion each year, although states have only budgeted about
$33.5 billion for prison expenses.32 This burden pressures governments
either to reduce federal and state prison costs, reform sentencing policies, or contract out the operation of prisons to low-cost providers.
Researchers have debated at length whether or not private
prisons are more cost-effective than public prisons.33 Proponents of
28

See supra notes 12–13 and accompanying text.
See SHAPIRO, supra note 3, at 18, 30–31 (“[T]he supposed benefits (economic and
otherwise) of private prisons often fail to withstand scrutiny.”); MATTERA ET AL., supra
note 3, at 69 (concluding that there is no clear evidence that privatization has lowered
recidivism).
30 A positive externality occurs where “the behavior of one party makes another party
better off but the first party does not receive the benefits of doing so . . . .” Lily L.
Batchelder, Fred T. Goldberg & Peter R. Orszag, Efficiency and Tax Incentives: The Case
for Refundable Tax Credits, 59 STAN. L. REV. 23, 44 (2006). Conversely, a negative externality occurs where the behavior of one party makes another party worse off but the first
party does not incur the cost of doing so. Left unchecked, actors tend not to incorporate
these benefits and costs into their decisions about whether to engage in particular behaviors. Id.
31 CHRISTIAN HENRICHSON & RUTH DELANEY, VERA INST. OF JUSTICE, THE PRICE OF
PRISONS: WHAT INCARCERATION COSTS TAXPAYERS 2 (2012), available at http://www.vera.
org/sites/default/files/resources/downloads/Price_of_Prisons_updated_version_072512.pdf
(assessing “corrections costs,” which include costs associated with prisons and parole
programs).
32 Id. at 6. Non-budgeted prison costs were as high as thirty-four percent of the original
budget in some states. Id. at 7. Prison costs in general were similarly varied: “Among the
40 states surveyed, representing more than 1.2 million inmates (of 1.4 million total people
incarcerated in all 50 state prison systems), the total per-inmate cost averaged $31,286 and
ranged from $14,603 in Kentucky to $60,076 in New York . . . .” Id. at 9.
33 See supra notes 18–20 (discussing the alleged cost effectiveness of private prisons). In
fact, proponents of private prisons have relied upon a number of studies when arguing the
benefits of private prisons. See, PRANIS, supra note 20, at 7–9 (discussing studies that found
private prisons to be cost effective); STEPHEN RAHER, COLO. CRIMINAL JUSTICE REFORM
29

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privatization argue that market forces drive down costs, causing corporations to perform more efficiently than government-run institutions.34 However, according to opponents of privatization,
competition in the private prison industry is virtually nonexistent
because the private prison market is a monopsony35 and because
many prison companies exist as geographic monopolies.36
Sadly, the focus on short-term monetary savings and the pressing
need for prison services and facilities shifts the focus away from other
externalities. In assessing the effectiveness and efficiency of prisons,
the government-customer should also consider recidivism, rehabilitation, and prisoner quality of life. The following Subparts explore the
current status of these issues in contemporary prisons.
B. Prisoner Quality of Life
When George Zoley, the chief executive officer of GEO,37 was
interviewed about the violent incidents that have taken place in
COAL., PRIVATE PRISONS AND PUBLIC MONEY: HIDDEN COSTS BORNE BY COLORADO’S
TAXPAYERS 3–4 (2002) (discussing the flaws of pro-privatization reports), available at
http://www.ccjrc.org/pdf/CostDataReport2002.pdf. However, opponents of privatized
prisons argue that such studies are flawed because they fail to account for cost variances
between private actors and the government. See PRANIS, supra note 20, at 7–9 (critiquing
the assumptions, methods, and conclusions of various studies); RAHER, supra, at 3–4 (surveying various studies conducted on the subject). New studies have shown that there are
many hidden costs. Id. at 2. Specifically, government prisons invest greater resources than
do private prisons. Id. at 7–9. Examples include (1) high security levels for high-risk prisoners; (2) comprehensive health care for prisoners with expensive health problems; (3)
rehabilitation programs; and (4) other state overhead costs. Id. at 7–9. When these differences are accounted for, privatized prisons may cost more than publicly run prisons. For
example, the Arizona Department of Corrections showed in its FY 2010 Operating Per
Capita Cost Report that once it applied an “Adjusted Expenses for Cost Comparison,”
privatized prisons were no more cost-effective. RYAN, supra note 20, at 3.
34 According to proponents, this competition-based cost control incentive makes private prisons the ideal choice. See ASHTON & PETTERUTI, supra note 19, at 6 (“The basis for
the belief that private prisons would be more economical is that market competition would
drive down costs. And since private firms must compete not only with industry rivals, but
also the government, it was assumed they’d have increased incentives to develop less
expensive corrections practices . . . .”).
35 Monopsony occurs in a market where there is only one buyer. Monopsony,
ROUTLEDGE DICTIONARY OF ECONOMICS, 397 (Donald Rutherford ed., 3d ed. 2013). In
the prison context, “there is only one customer—the state—and even though contract
prisons are operated by private entities, the funding still comes entirely from the public
sector.” RAHER, supra note 33, at 6.
36 A geographic monopoly exists when one producer provides a good or service to a
geographic region. Geographic monopolies typically appear in isolated locations that can
only support one supplier. DAVID EDWARD O’CONNOR, THE BASICS OF ECONOMICS 120
(2004). Together, CCA and GEO control seventy-seven percent of the market, “resulting
in a thin market where states can become ‘captive to’ their own contractors due to limited
competition within the industry.” Id.
37 See supra note 3 (discussing GEO).

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GEO’s facilities, he noted that “[a] correctional organization is subject
to numerous allegations of that nature . . . . That’s part of the business;
it’s a tough business. The people in prison are not Sunday school children.”38 Zoley’s glib comment may reflect a troubling dynamic in the
private prison system: So long as the various failings of private prisons
do not affect the bottom line, management will not take them
seriously.
Prisoner quality of life in the United States is in a dire state. On
average, about twelve percent of youth in juvenile facilities39 experience sexual victimization, while some juvenile facilities have sexual
victimization rates exceeding thirty percent.40 About ten percent of
former state prisoners have reported being sexually victimized during
their most recent stay in prison.41 More than half of all prisoners have
mental health problems.42 Furthermore, many prisoners are also
exposed to other ills in prisons, such as solitary confinement43 or violence at the hands of fellow inmates.44
38 Locked Inside a Nightmare, CBSNEWS.COM (May 9, 2000), http://www.cbsnews.com/
stories/2000/05/09/60II/main193636.shtml.
39 Many states contract private prison companies to run juvenile facilities. See id. (discussing the conditions of juvenile facilities owned by GEO).
40 ALLEN J. BECK, PAIGE M. HARRISON & PAUL GUERINO, BUREAU OF JUSTICE
STATISTICS, SEXUAL VICTIMIZATION IN JUVENILE FACILITIES REPORTED BY YOUTH,
2008–09, at 1 (2010), available at http://www.bjs.gov/content/pub/pdf/svjfry09.pdf.
41 Nearly 10 Percent of Former State Prisoners Reported Being Sexually Victimized
During Confinement, BUREAU OF JUSTICE STATISTICS (May 17, 2012), http://bjs.gov/
content/pub/press/svrfsp08pr.cfm (noting that thirty-nine percent of homosexual males and
thirty-four percent of bisexual males reported being victimized and noting that about
twenty-nine percent of all victims were physically injured during such encounters).
42 Study Finds More Than Half of All Prison and Jail Inmates Have Mental Health
Problems, BUREAU OF JUSTICE STATISTICS (Sept. 6, 2006), http://www.bjs.gov/content/pub/
press/mhppjipr.cfm (reporting that mental health issues are prevalent in seventy-three percent of females and fifty-five percent of males).
43 See generally CTR. FOR CONSTITUTIONAL RIGHTS, TORTURE: THE USE OF SOLITARY
CONFINEMENT IN U.S. PRISONS (n.d.), available at http://ccrjustice.org/files/CCR-FactsheetSolitary-Confinement.pdf (describing solitary confinement and its deleterious effects on
prisoners).
44 See generally JOHN J. GIBBONS & NICHOLAS DE B. KATZENBACH, VERA INST. OF
JUSTICE, CONFRONTING CONFINEMENT (2006), available at http://www.vera.org/sites/
default/files/resources/downloads/Confronting_Confinement.pdf (describing the effects of
prison violence and its harm to the prisoner and society as a whole). Reports of abuse in
prison are common. For example, in Louisiana’s Jena Juvenile Justice Center—owned and
operated by GEO—many of the employees engaged in sexual acts with, sold drugs to, and
participated in drug use with the prisoners. Locked Inside a Nightmare, supra note 38. The
Jena facility had five different wardens and overturned the staff three times in one year. Id.
The U.S. Department of Justice (DOJ) investigated the Jena facility and found it to be a
dangerous environment. Id. The DOJ discovered that GEO often failed to conduct background checks and that many of the guards lacked experience and some had criminal
records. Id.

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According to some observers, quality of life in private prisons is
worse than in public prisons, due to lack of training and cost cutting.
Specifically, there may be more violence in for-profit prisons than in
public prisons.45
Low quality of life in prisons is not just a humanitarian concern.
Academics have concluded that poor prison conditions, including violence and lack of rehabilitation programs, contribute to recidivism.46
This subject is discussed further in the next Subpart.
C. Recidivism
Recidivism is a major problem in the U.S. criminal justice system.
Over forty-five percent of prisoners released in 1999 were back in
prison within three years.47 The prevailing “tough on crime” approach
has created a prison culture that encourages many prison operators to
focus primarily on punishment,48 failing to acknowledge that a toxic
prison environment can lead to negative outcomes for individual prisoners and society as a whole.49 On the other hand, prisons that
focus on rehabilitation—through vocational, educational, and
45

See, e.g., SCOTT D. CAMP & GERALD G. GAES, FED. BUREAU OF PRISONS, GROWTH
QUALITY OF U.S. PRIVATE PRISONS: EVIDENCE FROM A NATIONAL SURVEY 16
(2001), available at http://www.bop.gov/news/research_projects/published_reports/pub_vs_
priv/oreprres_note.pdf (“Advocates of prison privatization have argued that private
prisons can pay workers less, offer fewer benefits, and still deliver a product that is as good
or better than that provided by the public sector. The evidence to date contradicts such an
encompassing assertion.”); SHAPIRO, supra note 3, at 23 (“The perverse incentives to maximize profits and cut corners—even at the expense of safety and decent conditions—may
contribute to an unacceptable level of danger in private prisons.”); Curtis R. Blakely & Vic
W. Bumphus, Private and Public Sector Prisons: A Comparison of Select Characteristics,
FED. PROBATION, June 2004, at 27, 29 (“[T]he private sector experienced more than twice
the number of assaults against inmates than did the public sector.”). But see Dina Perrone
& Travis C. Pratt, Comparing the Quality of Confinement and Cost-Effectiveness of Public
Versus Private Prisons: What We Know, Why We Do Not Know More, and Where to Go
from Here, 83 PRISON J. 301, 309 (2003) (finding inconclusive results on safety when comparing private and public prisons).
46 See infra notes 48–50.
47 PEW CTR. ON THE STATES, STATE OF RECIDIVISM: THE REVOLVING DOOR OF
AMERICA’S PRISONS 2 (2011), available at http://www.pewtrusts.org/uploadedFiles/
wwwpewtrustsorg/Reports/sentencing_and_corrections/State_Recidivism_Revolving_
Door_America_Prisons%20.pdf; see also PATRICK A. LANGAN & DAVID J. LEVIN,
BUREAU OF JUSTICE STATISTICS, RECIDIVISM OF PRISONERS RELEASED IN 1994 1 (2002),
available at http://www.bjs.gov/content/pub/pdf/rpr94.pdf (studying a group of offenders
released in 1994 and finding that within three years 67.5% were rearrested and 51.8% were
back in prison).
48 See Etienne Benson, Rehabilitate or Punish?, MONITOR ON PSYCHOL., July/Aug.
2003, at 46 (“[A] combination of strict sentencing guidelines, budget shortfalls and a punitive philosophy of corrections has made today’s prisons much more unpleasant—and much
less likely to rehabilitate their inhabitants—than in the past, many researchers say.”).
49 See id. at 47 (describing the negative impact of the prison environment). See generally JAMES GILLIGAN, PREVENTING VIOLENCE (2001) (arguing that treating violence as a
AND

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psychotherapy programs—can shape former prisoners into more productive members of society.50
The evidence indicates that private prisons, unfortunately, have
not proven adept at preventing recidivism.51 In Oklahoma, for
example, “private prison inmate groups had a greater hazard of recidivism than did public inmate groups.”52 Opponents of private prisons
argue that this disparity results from a lack of incentives for private
prisons to reduce future crimes.53
Although dynamics outside of the prison system certainly play a
role in recidivism,54 correctional facilities should still attempt to provide prisoners with the tools they need to successfully reintegrate into
society. Private prisons are not exempt from this critical responsibility.
The rest of this Note explores why private prisons may perpetuate
recidivism, and how governments might incentivize private prisons to
address these negative externalities.

public health problem deserving of rehabilitation is a more effective method of reducing
crime and making prisons a productive correctional tool).
50 Benson, supra note 48, at 47. See generally U.K. DEP’T FOR BUS., INNOVATION &
SKILLS & U.K. MINISTRY OF JUSTICE, MAKING PRISONS WORK: SKILLS FOR
REHABILITATION (2011), available at https://www.gov.uk/government/uploads/system/
uploads/attachment_data/file/230260/11-828-making-prisons-work-skills-for-rehabilitation.
pdf (describing the United Kingdom’s efforts to focus on rehabilitation in order to lower
instances of recidivism).
51 Andrew L. Spivak & Susan F. Sharp, Inmate Recidivism as a Measure of Private
Prison Performance, 54 CRIME & DELINQUENCY 482, 503 (2008).
52 Id. But see Lonn Lanza-Kaduce, Karen F. Parker & Charles W. Thomas, A
Comparative Recidivism Analysis of Releasees from Private and Public Prisons, 45 CRIME
& DELINQENCY 28, 35 (1999) (finding lower recidivism rates among prisoners from private
Florida prisons as compared to prisoners from public Florida prisons).
53 See SHAPIRO, supra note 3, at 30 (“Not only is there little incentive to spend money
on rehabilitation, but crime, at least in one sense, is good for private prisons: the more
crimes that are committed, and the more individuals who are sent to prison, the more
money private prisons stand to make.”).
54 See, e.g., JOHN R. HEPBURN & MARIE L. GRIFFIN, AN ANALYSIS OF RISK FACTORS
CONTRIBUTING TO THE RECIDIVISM OF SEX OFFENDERS ON PROBATION 5 (2004), available
at https://www.ncjrs.gov/pdffiles1/nij/grants/203905.pdf (noting that multiple factors
including the offender’s age, educational history, and marital status can impact recidivism
rates among sexual offenders); Charis E. Kubrin, Gregory D. Squires & Eric A. Stewart,
Neighborhoods, Race, and Recidivism: The Community-Reoffending Nexus and Its
Implications for African Americans, 32 SAGE RACE REL. ABSTRACTS 7, 8–9 (2007)
(finding that the neighborhoods that ex-prisoners return to can impact their likelihood of
recidivating).

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II
THE BUSINESS DYNAMICS OF PRIVATE PRISONS
COMPOUND THE PROBLEMS COMMON TO THE
U.S. PRISON SYSTEM
As discussed in Part I, high recidivism rates plague both public
and private prisons. The following Subpart discusses why private
prisons have fared no better than public prisons, and further suggests
that the institutional structure of private prisons tends to exacerbate
these problems. Part II.B goes on to argue that, as profit-seeking corporations, private prison companies can be incentivized to address
negative externalities.
A. Interest Divergence Between Customer and Shareholder
The divergence of interests between the government-customer
and prison corporations is one of the main reasons private prisons
have not meaningfully addressed high recidivism for prisoners. Specifically, the government-customer should aim for lower costs in the
short term and lower recidivism in the long term. In contrast, private
prisons stand to profit by managing more prisons and keeping those
facilities well stocked with inmates.55 Consequently, any decrease in
the prison population cuts into revenues, while every instance of
recidivism is a potential windfall.
The relationship between private prisons and the governmentcustomer, as structured, is inherently misaligned. Perhaps CCA said it
best:
The demand for our facilities and services could be adversely
affected by the relaxation of enforcement efforts, leniency in conviction or parole standards and sentencing practices or through the
decriminalization of certain activities that are currently proscribed
by criminal laws. For instance, any changes with respect to drugs
and controlled substances or illegal immigration could affect the
number of persons arrested, convicted, and sentenced, thereby
potentially reducing demand for correctional facilities to house
them. . . . Legislation has also been proposed in numerous jurisdictions that could lower minimum sentences for some non-violent
55 See THE SENTENCING PROJECT, PRISON PRIVATIZATION AND THE USE OF
INCARCERATION 4 (2004), available at http://www.sentencingproject.org/doc/publications/
inc_prisonprivatization.pdf (“[B]ecause most private prisons operate on a per diem rate for
each bed filled, there is a financial incentive not only to detain more inmates but also to
detain them for a longer period of time.”); Al Lewis, Private Prisons Prove That Crime
Does Pay, MARKET WATCH (Nov. 9, 2011, 9:12 AM), http://articles.marketwatch.com/
2011-11-09/commentary/30810260_1_private-prisons-detention-center-county-judges (“The
ACLU argues that an industry with an economic incentive to lock people away is going to
find all sorts of creative ways to do just that.”).

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crimes and make more inmates eligible for early release based on
good behavior. Also, sentencing alternatives under consideration
could put some offenders on probation with electronic monitoring
who would otherwise be incarcerated. Similarly, reductions in crime
rates or resources dedicated to prevent and enforce crime could
lead to reductions in arrests, convictions and sentences requiring
incarceration at correctional facilities.56

This excerpt illustrates how the goal of maximizing shareholder
value can be in direct conflict with the normative long-term goals of
the government-customer. The needs of the government-customer are
not limited to low-cost management of prison populations; prisons
should also provide reasonable conditions and play an active role in
reducing long-term incarceration rates.
B. The Impact of Interest Divergence on Prison Conditions
Private prison staffing practices are a prime example of how corporate dynamics lead to negative externalities in private prisons. The
private prison system is plagued with low-paid, inexperienced, and
poorly trained workers; inadequate staffing, in turn, leads to dangerous prison conditions.57
Prison labor is costly.58 For privatized prisons to retain government-customers and please shareholders, they must offer savings over
public prisons, while keeping operating costs low enough to generate a
profit margin. Because labor constitutes sixty to eighty percent of
operating expenses,59 it is a prime target for cost-cutting. As a result,
private prisons stand to profit substantially by employing fewer
workers and depressing wages.60 The result is problematic: Private
prisons end up attracting and hiring inexperienced workers, who in
turn receive lower pay, fewer benefits, and little training.61 Many private prison corporations also concentrate their services in geographic
markets that are hostile to unions, such as the southern states.62
56

CCA 10-K, supra note 3, at 28–29.
See supra Part I.B (describing instances where inadequate staffing has led to poor
prison conditions).
58 See Schlosser, supra note 13, at 65 (describing private prisons’ efforts to cut labor
costs).
59 CAMP & GAES, supra note 45, at 2.
60 See ASHTON & PETTERUTI, supra note 19, at 34 (noting that employees in private
prisons are often paid less than employees in public prisons).
61 See SHAPIRO, supra note 3, at 27–28 (describing the low pay and high staff turnover
in many private prisons).
62 Schlosser, supra note 13, at 65 (“Although private-prison companies are now moving
into northern states and even signing agreements with some labor unions, the overwhelming majority of private-prison cells are in southern and southwestern states hostile to
unions.”).
57

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Without unions, individual workers struggle to successfully negotiate
for higher pay, safer working conditions, and sufficient training.63
Inadequate training is particularly troubling.64 Poor training coupled with inexperience in a high-risk environment is a formula for a
dangerous enterprise. Prison companies like CCA and GEO have
been sued for wrongful death,65 prison escape,66 and medical neglect.67 After being fired over a mistaken prisoner release, one
employee stated that he never received formal training.68 The ACLU
notes that these shortcuts create grave risks, as low pay and high turnover may “contribute to the higher levels of violence seen in the private sector.”69
The CCA’s owner-operated prison at Youngstown provides a
textbook example of the risks associated with inadequate staffing in
privatized prisons.70 From the moment the prison opened, it was
“plagued with stabbings and disturbances.”71 In July 1998, six prisoners—including four convicted murderers—fled the prison “in broad
daylight,”72 generating a national controversy. At the time of the
escape, CCA was defending a class action lawsuit filed on behalf of its
prisoners, who claimed that the facility was unsafe.73 U.S. District
Judge Sam Bell noted that CCA’s actions amounted to “a deliberate
indifference to the conditions of the prisoners.”74
63

ASHTON & PETTERUTI, supra note 19, at 34.
See id. (noting that private prison employees often receive less training than their
public counterparts).
65 See, e.g., Jamie Ross, Disturbing Complaint Against Private Prison, COURTHOUSE
NEWS SERVICE (Feb. 17, 2012, 10:08 AM), http://www.courthousenews.com/2012/02/17/
43997.htm (describing a lawsuit brought against CCA after one prisoner stabbed another
prisoner 140 times).
66 See, e.g., SHAPIRO, supra note 3, at 29 (detailing the escape of a convicted murderer
from a CCA prison in Arizona and noting that much of the staff was inexperienced).
67 See, e.g., Margaret Winter & Gabriel Eber, Private Prisons Are the Problem, Not the
Solution, ACLU (Apr. 30, 2012, 4:38 PM), http://www.aclu.org/blog/prisoners-rightscriminal-law-reform/private-prisons-are-problem-not-solution (asserting that in
Mississippi, GEO had starved mentally ill prisoners, put them in solitary confinement, and
denied them medical care, leading to high rates of suicide and suicide attempts).
68 MATTERA ET AL., supra note 3, at 4.
69 Blakely & Bumphus, supra note 45, at 30.
70 See MATTERA ET AL., supra note 3, at 15–17 (describing the many problems at the
Youngstown prison as indicative of issues at other private prisons suffering from inadequate staffing).
71 Id. at 17.
72 Id.
73 Id. From the time the lawsuit was filed to the time the case was decided, nineteen
stabbings had occurred in the prison, some of them fatal. Id.
74 Id. CCA paid $1.6 million to prisoners and $756,000 in legal fees to settle the class
action lawsuit, and eventually lost its contract when the District of Columbia declined to
renew. Id. In this incident, cost-cutting eventually led to a loss in revenue. Nonetheless,
private companies continued to attract serious lawsuits due to poor management,
64

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It seems that neither shareholders nor government-customers are
effectively pressuring private prison companies like CCA to invest in
their workforce. As discussed in the next Subpart, the “capture” of
government-customers may help explain this hands-off approach.
C. Compounding Disincentives
In addition to the conflict between the government-customer and
the shareholders, the interaction between private prisons and the government creates compounding disincentives. Specifically, the government agents responsible for overseeing private prisons may be
“captured” as a result of the revolving door between corporate and
government personnel, lobbying, and campaign funding.75 Consequently, administrative bureaucracy, coupled with agency capture,
prevents some states from demanding better service from private
prison companies or reassigning prison contracts to new competitors.76 Governmental actors justify the continued use of private
prisons by pointing to short-term cost savings, while ignoring prison
recidivism.77
Furthermore, lobbying organizations like the American
Legislative Exchange Council (ALEC)—an organization that has
employee negligence, and lack of training. See id. at 5–9 (describing suits against the CCA
in the early 2000s); see also Bilbo Poynter, Private Prison Companies Look to Canada as
Industry Faces Lawsuits in US, THE GUARDIAN (June 19, 2012, 11:20 AM), http://www.
guardian.co.uk/world/2012/jun/19/private-prison-companies-canada-lawsuits (noting that
private prison companies are starting to expand to Canada due to the increasing number of
lawsuits they face in the United States).
75 See SHAPIRO, supra note 3, at 36 (describing how the revolving door can create conflicts of interest); ASHTON & PETTERUTI, supra note 19, at 15 (noting how private prison
companies such as GEO and CCA use campaign donations, lobbyists, and relationships
with governments to promote favorable policies).
76 Even though private prisons have been shown to have subpar conditions,
government-customers rarely fire prison companies. Compare Alex Friedmann, The
Societal Impact of the Prison Industrial Complex, or Incarceration for Fun and Profit—
Mostly Profit, PRISON LEGAL NEWS, https://www.prisonlegalnews.org/(S(wpyjgg2qotqqd0r
kmz0hr545))/24106_displayArticle.aspx (last visited Jan. 29, 2014) (noting that recidivism
and violence are higher in private prisons and that little is being done to correct these
failures), with MACQUARIE RESEARCH EQUITIES, supra note 12, at 18 (“We would view a
contract loss as [CCA’s] primary fundamental risk. That noted, contract losses are rare, as
reflected in [CCA’s] 90%-plus renewal rate.”), and RBC CAPITAL, CORRECTIONS CORP.
OF AMERICA 4 (2009) (on file with the New York University Law Review) (“We believe it
is unlikely that governments would risk handing prison management to an unproven new
competitor and that maintaining market share will allow for ample growth across the
group.”).
77 See Friedmann, supra note 76 (arguing that, as long as prison companies are available to provide more prison beds, government officials will postpone meaningful prison
reform, and noting that prison lobbying efforts play an important role in postponing
reform).

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advocated for harsh sentencing laws78—help ensure that government
actors do not place meaningful pressure on private companies to work
toward prison reform that translates into long-term benefits for
society.79 These direct and indirect relationships with the governmentcustomer are often hard to track due to lobbying regulations that vary
by state and the lack of transparency in political donations.80
In particular, the influx of lobbying in the prison industry distracts from the disturbingly high rates of recidivism. The lack of attention on curbing recidivism contributes to a self-perpetuating cycle that
not only creates more profits for private prisons, but also makes
society more dependent upon them. When government-customers
focus exclusively on short-term cost reduction and refuse to enlist private prisons in the fight against recidivism, the prison population
grows unchecked, thereby ensuring that cost reduction remains the
ongoing priority for many governments.
For society to benefit from private prisons, it must demand more
than a short-term, convenient solution to the prison problem. Otherwise, if prison corporations are allowed to focus solely on short-term
cost-reduction, their long-term revenue stream will continue to
increase to the detriment of society.

78 SHAPIRO, supra note 3, at 14; see also NOW: Prisons for Profit (PBS television
broadcast the week of May 9, 2008), available at http://www.pbs.org/now/shows/419/index.
html (explaining that ALEC, in drafting business-oriented laws for state legislators, has
played a significant role in bringing about laws that have “pushed our prison populations
beyond the capacity of our public prisons”).
79 Private prison companies have aggressively promoted public policies that tend to
increase revenues for private prisons. See NOW: Prisons for Profit, supra note 78 (stating
that CCA and GEO have been closely involved with organizations advocating harsher sentencing, and have benefitted financially from resulting legislation); Laura Carlsen, With
Immigration Reform Looming, Private Prisons Lobby to Keep Migrants Behind Bars,
HUFFINGTON POST (Mar. 5, 2013), http://www.huffingtonpost.com/laura-carlsen/
immigration-reform-privation-prisons-lobby_b_2665199.html (noting that CCA has hired
law firm Akin Gump Strauss Hauer & Feld to lobby for “[i]ssues pertaining to the construction and management of private prisons and detention facilities; the Commerce,
Justice, State appropriations bill; the Homeland Security appropriations bill; Freedom of
Information Act legislation; monitor immigration reform; Safe Prisons Communications
Act”); Stephen Dinan, Sen. Schumer’s Prison Lobby Ties Alarm Immigrant Advocates,
WASH. TIMES (Apr. 2, 2013), http://www.washingtontimes.com/news/2013/apr/2/senschumers-prison-lobby-ties-alarm-immigrant-adv/ (noting that immigration rights advocates are pressuring Senator Schumer, a prominent figure in the fight for immigration
reform, to stop accepting contributions from the private prison lobby, given the lobby’s
interest in the detention of immigrants).
80 See SHAPIRO, supra note 3, at 38–40 (concluding that, although variable state lobbying disclosure requirements make exact calculations difficult, private prison companies
spend large sums on lobbying and campaign contributions).

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SOLUTIONS

FOR

III
REDUCING RECIDIVISM
PRISON SYSTEM

IN THE

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PRIVATE

The promise upon which private prison corporations market
themselves extends beyond simple cost savings; these companies
purport to offer broad solutions to the shortcomings of public
prisons.81 One reason why prison corporations may be unmotivated to
fulfill this promise is that, to the extent their efforts result in a reduction in recidivism, they jeopardize their own future revenue streams.82
Fortunately, this dynamic is not immutable: The government-customer
can restructure economic incentives to align corporate profit-seeking
with the broader needs of society.83 Government-customers should
consider implementing strategic tax policies that force private prisons
to internalize externalities.84 This Part provides an overview of
refundable tax credits and recommends the PPR credit as a tool to
align the interests of private prison companies with those of society
and the government-customer.
A. Incentivizing Corporate Behavior Through Refundable
Tax Credits
Social reform is one of several goals underlying U.S. tax policy.85
There are three primary taxation tools that positively reinforce
desired behavior: exemptions, deductions, and credits.86 Of these, aca81 See The CCA Story: Our Company History, CORR. CORP. OF AM., http://www.cca.
com/our-history (last visited Jan. 29, 2014) (claiming that CCA was founded in part to
address “government-only failures” with “smarter, more effective solutions” and that CCA
continues to develop “innovations” regarding “high quality safety and security, and rehabilitation and re-entry”).
82 For a discussion of the economic disincentives associated with tackling recidivism,
see supra Part II.A.
83 This line of reasoning comes from corporate social responsibility literature. See, e.g.,
Joanna Semeniuk, The Alignment of Morality and Profitability in Corporate Social
Responsibility, ERASMUS STUDENT J. PHIL., July 2012, at 17, 17 (explaining that if there is a
socially valuable interest that corporations are failing to take into account, it is best to align
this interest with the profit interest of shareholders). Once negative externalities are internalized, capitalism can work to the advantage of society, while simultaneously benefiting
corporate shareholders. Id. For an in-depth discussion about internalizing externalities, see
Tatiana Mosteanu & Mihaela Iacob, Principles for Private and Public Internalisation of
Externalities. A Synoptic View, THEORETICAL & APPLIED ECON., Oct. 2009, at 36, 36–40
(assessing the role of government intervention in managing externalities and internalities).
84 See supra Part II.B, for a discussion of why traditional market failures inadequately
account for negative externalities.
85 See Daniel M. Reach, Fitness Tax Credits: Costs, Benefits, and Viability, 7 NW. J. L.
& SOC. POL’Y 352, 359 (2012) (noting that, historically, social reform has been a legitimate
goal of tax policy).
86 See CTR. ON BUDGET AND POLICY PRIORITIES, POLICY BASICS: TAX EXEMPTIONS,
DEDUCTIONS, AND CREDITS 1 (2013), available at http://www.cbpp.org/files/

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demics generally view credits as the superior method of incentivizing
behavior.87
Politicians can use two types of tax credits to effectuate policy:
refundable tax credits and nonrefundable tax credits.88 Refundable
tax credits are offered to the eligible taxpayer regardless of whether or
not the taxpayer actually owes taxes.89 Nonrefundable tax credits are
only credited against tax liability the taxpayer actually has to pay.90
Today, refundable tax credits account for an increasingly significant
portion of all tax incentives.91
Refundable tax credits have many benefits. First, they reduce
administrative and compliance costs and are distributionally fair and
efficient for the issuing government.92 Second, refundable tax credits
are the most powerful tax subsidy for correcting negative externalities
and encouraging positive externalities. These credits provide consistent cash output for socially beneficial activities since they do not vary
based on a company’s tax bracket (as would be the case with a deduction), and they do not depend on whether a company has a sufficient
amount of income (as would be the case with a nonrefundable
credit).93 Instead, refundable tax credits allow legislatures to consider
policybasics-exempt.pdf (comparing the efficacy of tax exemptions, deductions, and credits
in incentivizing certain behavior).
87 See Brian H. Jenn, The Case for Tax Credits, 61 TAX LAW. 549, 580 (2008) (“To the
extent that it is possible to make general statements about the relative advantages of
credits and deductions, the weight of the considerations seems to favor implementation of
tax incentives as credits.”). Since filers eligible for a tax credit receive a set amount, there is
less room for variation. In contrast, the amount of a deduction will vary based on the
individual or company’s tax bracket, among other things. See id. at 570 (“Relative to a
refundable credit, a deduction provides differential incentives for taxpayers along at least
four notable dimensions: filers vs. non-filers, itemizers vs. non-itemizers, among taxpayers
in different marginal rate brackets, and among taxpayers with different annual income
volatilities.”). A corporation can therefore predict more accurately how much of a credit it
will receive in advance, thereby facilitating corporate financial planning. Also, because
credits are more transparent than deductions, taxpayers respond to credits in a more predictable way. Id. at 580.
88 See CTR. ON BUDGET AND POLICY PRIORITIES, supra note 86, at 2 (differentiating
refundable tax credits from nonrefundable tax credits).
89 Id.
90 Id.
91 Batchelder et al., supra note 30, at 24 (noting that prior to 1975 individual tax incentives were not structured as refundable tax credits, but that by 2006 refundable tax credits
accounted for eighteen percent of all tax incentives).
92 Refundable credits remain the same regardless of a taxpayer’s income level; therefore, they are easier to implement and estimate. See id. at 42–57 (arguing generally that the
uniform refundable tax credit should be the default structure for tax incentives because of
its efficiency).
93 Id. at 49. It should be noted that the two largest private prison companies, CCA and
GEO, have recently transitioned from C corporations to Real Estate Investment Trusts
(REITs), for tax purposes. CCA 10-K, supra note 3, at 5 (“Prior to the REIT conversion,
we operated as a taxable C corporation for federal income tax purposes.”); GEO GRP.,

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the two most important factors in determining efficiency of the credit:
the benefit to society and the responsiveness of the company to the
incentive.94
Refundable tax credits have not yet been used to align interests in
the private prison industry—an industry whose interests are in dire
need of realignment. The following Subpart builds on tax theory and
interest alignment to advocate for the PPR credit—a refundable,
performance-based tax credit that incentivizes private prison companies to effectively rehabilitate prisoners.
B. Proposal: PPR Credit
In recent years, prison reform advocates have argued against the
continued use of private prisons.95 However, even though privatized
prisons are underperforming, the theory behind privatization is a positive one: Its aim is to promote efficiency and financial economy—
through corporate expertise and market pressures—to lower cost and
create value. Instead of discontinuing the practice of prison privatization altogether, the government-customer should encourage private
prisons to implement programs that will benefit society as well as
shareholders. In the following Subparts, I will discuss the relative
advantages of my proposal, the Private Prisoner Rehabilitation tax
credit. I will further explain why the PPR credit is better than other
proposed alternatives, such as social impact bonds and contractual
rewards.
1. Framework for the PPR Credit
The PPR credit consists of the following features: (1) funding
through the tax system; (2) delayed conditional payment; (3) performINC., 2012 ANNUAL REPORT ON FORM 10-K 38 (2012) [hereinafter GEO 10-K] (“GEO
began operating as a REIT for federal income tax purposes effective January 1, 2013.”).
Though REITs, unlike C corporations, generally do not pay federal income tax at the
entity level, CCA and GEO will still have to pay federal taxes since they will have one or
more taxable REIT subsidiaries (TRSs), which are subject to corporate income taxes. See
CCA 10-K, supra note 3, at 6 (noting that CCA will still have to pay taxes due to the
TRSs); GEO 10-K, supra, at 4 (same). State governments take varied approaches on the
taxation of REITs. See Josie Lowman & Charolette Noel, State Taxation of REITs:
Understanding the Issues Faced by Taxpayers and State Tax Administrators, TAX MGMT.
WKLY. ST. TAX REP., Apr. 27, 2007, at 5 (noting that some states allow REITs not to pay
an entity tax, while others require REITs to pay an entity level tax). Even if CCA or GEO
never had any taxes to pay, the refundable tax credit would still be beneficial to these
companies since the tax credit is not dependent on a taxpayer’s tax liability.
94 See Batchelder et al., supra note 30, at 42–57 (arguing generally that a uniform
refundable tax credit should be the default structure for tax incentives because of its
efficiency).
95 See, e.g., SHAPIRO, supra note 3 (evaluating the role of private prisons in encouraging mass incarceration in the United States).

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ance goals; and (4) third-party assessors. It would function as follows:
Through the tax codes of participating governments, private prison
companies could claim the various PPR credits96 upon meeting
specific, tangible, state-mandated benchmarks. For example, a benchmark might consist of a five percent annual decrease in rape incidents,
a five percent annual decrease in prison assault incidents, increased
employee training through a state-certified program, implementation
of transitional programming that sixty percent of inmates attend with
eighty percent of them meeting certain educational goals, or other
specific goals.97 Thus, the PPR credit allows the government to influence a private prison company’s “double bottom line.”98
This strategy offers important advantages over a governmentoperated alternative. It allows the government to utilize the resourcefulness and efficiency of the corporate form without sacrificing important performance goals. The PPR credit also allows governments to
support new programs without any upfront investment: The initial
investment risk is completely allocated to the private prison company
because the taxpayer incurs no additional cost unless the programs
deliver results. Finally, the PPR credit is more politically feasible than
a government-operated program because the general public tends to
view tax subsidies more favorably than direct expenditures.99
2. Feasibility and Accountability
a. Feasibility of Outcomes
The PPR credit is only useful to the extent that private prisons
are capable of curbing negative externalities such as recidivism and
poor quality of life in prisons. Although recidivism has a variety of
causes, prisons, as institutions, are relatively well positioned to reduce
96 Governments could offer PPR credits associated with smaller, interrelated goals.
There could be PPR credits, for example, for decreasing violence and rape, increasing
participation in life-skills classes, etc. Recidivism, in contrast, is something that cannot be
measured in the short-term. I therefore recommend that certain intermediate goals be
identified. These goals would create a pathway to lowering recidivism.
97 Many organizations and state entities already evaluate prison conditions. However,
in order for the PPR credit to work efficiently, a unified model for evaluating these metrics
must be created. Building such a model is beyond the scope of this Note, but it is an issue
that merits further discussion.
98 The “double bottom line” applies to “those entities organized as for-profit corporations that are also responsible for delivering some public service. Because such entities
focus on profits as well as their public social mission, they have two bottom lines.” Fairfax,
supra note 25, at 204 (internal citation omitted).
99 See The High Price of Tax Breaks: Not So Easy, THE ECONOMIST, Apr. 28-May 4
2012, at 32, 32 (noting that tax expenditures are politically popular and often favored by
politicians).

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the probability that a given prisoner will return to prison.100 Rehabilitation programs in particular have been recognized as an effective tool
in lowering recidivism.101 Studies have found that, controlling for
other variables, rehabilitation programs have reduced recidivism by
up to thirty percent.102 About forty meta-analyses have since further
confirmed the effectiveness of rehabilitation programs.103 For
example, a prominent meta-analysis found that individual counseling,
interpersonal skills development, and behavioral programs are effective forms of rehabilitation among juveniles.104 Furthermore, private
prisons are well positioned to address drug abuse, sexual assault, and
violence in prisons, which are exacerbated by overcrowding, understaffing, and poor training among prison personnel.
The evidence therefore suggests that, properly incentivized, private prisons are capable of improving prisoner quality of life while
reducing recidivism. The following Subpart argues that, from an economic standpoint, the PPR credit can induce prisons to take the necessary actions to achieve these goals at a price that represents a net
benefit to society.
b. Economic Feasibility
In order to be economically feasible, the PPR credit must offer a
potential net gain to both the private prison company and the
government-customer. In this context, the government-customer must
identify performance measures and establish targets (a process I will
refer to as “benchmarking”), and announce what it is willing to pay
for those targets to be met. The following discussion will focus on
100 See DORIS LAYTON MACKENZIE, WHAT WORKS IN CORRECTIONS: REDUCING THE
CRIMINAL ACTIVITIES OF OFFENDERS AND DELINQUENTS (2006) (examining the impact of
correctional interventions, management policies, and rehabilitation programs on the recidivism rates of offenders and delinquents).
101 See Mark W. Lipsey, Can Intervention Rehabilitate Serious Delinquents?, in Will the
Juvenile Court System Survive?, 564 ANNALS AM. ACAD. POL. & SOC. SCI. 142, July 1999,
at 143–44 (Ira M. Schwartz, ed.) (noting that although the value of rehabilitation programs
in reducing recidivism has been challenged, the effectiveness of rehabilitation programs
can be proven using meta-analysis); see also D.A. Andrews & James Bonta, Rehabilitating
Criminal Justice Policy and Practice, 16 PSYCHOL. PUB. POL’Y & L. 39, 39 (2010) (concluding that, from a psychological perspective, “get tough on crime” policies do little to
reduce recidivism or prevent crimes, and arguing that the criminal justice system should
focus on rehabilitation instead).
102 Andrews & Bonta, supra note 101, at 44.
103 JAMES MCGUIRE, UNDERSTANDING PSYCHOLOGY AND CRIME 158 (2004); see also
Andrews & Bonta, supra note 101, at 44 (discussing a meta-analysis of 400 treatment
studies showing reduced rates of recidivism).
104 See Lipsey, supra note 101, at 145–46 (describing the difference between a forty-four
percent recidivism rate for treated juveniles and a fifty percent rate for untreated juveniles
as “modest” but “statistically significant”).

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recidivism, which is perhaps the most pressing and most complicated
issue to be addressed by the PPR.
We must recognize that, from the private prison’s perspective, the
costs of earning the PPR credit extend beyond the cost of improving
prison services to include rehabilitation of more prisoners. Assuming
the company holds a monopoly over prison facilities in the jurisdiction,105 every would-be recidivist who is successfully rehabilitated represents a loss of future revenues and potential profits.106 Setting aside
the time value of money, a private prison must weigh the costs of its
rehabilitation efforts against the expected gains from the PPR credit,
while accounting for the loss of profit107 associated with each new
non-recidivist. The costs to prisons are therefore higher than they first
appear.
However, while the costs to private prisons of reducing recidivism
might be high, the potential value to society likely outweighs these
costs. In calculating recidivism’s cost to a given community, the most
concrete factor is the aggregate per diem rate that society pays to
incarcerate its repeat offenders.108 However, the cost does not end
there. The community incurs the cost of whatever crimes recidivists
commit. The local economy loses the productive capacity of incarcerated recidivists, and the government loses a taxpayer. More difficult to
quantify, but equally valid, is the value the recidivist might have
offered to his or her family and community and the loss of life and
enjoyment to the recidivist himself.
In order for the PPR credit to be economically feasible—that is,
“profitable” to both parties—the aggregate cost of recidivism to
society must outweigh the combined costs to private prisons of rehabilitating prisoners, plus the loss of expected profit associated with
each would-be recidivist. While a thorough empirical analysis is
beyond the scope of this Note, the promising results of prisoner rehabilitation studies109 and the high costs of recidivism to society militate
in favor of the PPR’s conceptual viability. Government economists
would be left with the task of analyzing the size of the margin and
identifying optimal performance targets and credit quantities to incentivize the desired investments.
105 Many private prison companies do hold monopolies in various states. See supra note
36 and accompanying text.
106 See supra Part II.A.
107 In this calculation, profit, rather than revenue, is the critical measure.
108 That is, the private prison’s incremental revenue per prisoner, rather than profit
alone.
109 See supra Part I.C.

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c. Political Feasibility
As discussed above in Part II.C, compounding disincentives have
the potential to make government actors and corporate management
focus on the short-term solution of lowering costs at the expense of
the long-term solution of decreasing recidivism. The PPR’s incentivealigning structure, however, would allow it to hurdle these potential
political challenges. The PPR credit creates a win-win situation for
private prison companies and government actors. The companies
stand to benefit from a new source of income and, therefore, have no
reason to exert political pressure against the scheme. Because the
PPR credit also offers a net benefit to the community, it is in the
interest of both the government-customer and the corporation to
implement the PPR credit.
d. Program Accountability
For private prisons to receive the PPR credit, an independent
third-party would need to confirm that the goals were in fact met.
Currently, many private prison companies are accredited.110 However,
private prison accreditations may not be entirely trustworthy for the
following reasons: First, prisons generally pay for this accreditation.
Second, accreditation is scheduled long in advance. Third, the
accreditors often do not do a comprehensive assessment of the correctional facilities.111
For the PPR credit to function effectively, assessments must be
conducted by an independent third party who is not subject to capture
and who would provide accurate information. The financial sector
provides a useful analogy, as independent financial auditors are held
to high ethical standards.112 To evaluate performance-based outcomes
in the private prison industry, a similarly independent auditor is
necessary.

110 See RICHARD W. HARDING, PRIVATE PRISONS AND PUBLIC ACCOUNTABILITY 64
(1997) (“The accreditation clause now, quite literally, appears in every private prison contract . . . [e]ven if the abstract law does not mandate this . . . .”).
111 See id. (noting that the accreditation process has drawn criticism because “the audit
is too much a paper audit,” “the visits are scheduled well in advance,” “no unannounced
visits are made during the three-year accreditation period,” and “the ACA is dependent on
audit fees as its primary source of income”).
112 See, e.g., Code of Professional Conduct, AICPA, http://www.aicpa.org/Research/
Standards/CodeofConduct/Pages/default.aspx (last visited Jan. 29, 2014) (setting out the
ethical standards for certified public accountants).

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3. The PPR Credit Is Better Than Other Alternatives
a. Social Impact Bonds
Social impact bonds (SIBs) represent a new approach to government contracts, rewarding third parties—nonprofit institutions, investors, and other stakeholders—ex post for reaching performance
benchmarks, rather than ex ante for tendering the lowest bid.113 Put
another way, a SIB is a type of “pay-for-performance” contract.114 In
a SIB, investors provide low-interest loans to a nonprofit organization
to support a specific project.115 If the nonprofit organization accomplishes its stated goals, only then will the government pay the value of
the project.116 Investors are compensated, if at all, from that government payment.117
Though SIBs have theoretical benefits,118 there are also many
uncertainties regarding their costs and feasibility.119 First, there are
113

MCKINSEY & CO., FROM POTENTIAL TO ACTION: BRINGING SOCIAL IMPACT BONDS
US 7 (2012), available at http://mckinseyonsociety.com/downloads/reports/
Social-Innovation/McKinsey_Social_Impact_Bonds_Report.pdf. McKinsey & Company
describes SIBs as follows:
SIB investors provide capital that fulfills two purposes: up front, it pays for the
services of the nonprofit service provider and, over the lifetime of the SIB, for
the intermediary, the evaluation adviser, and the independent assessor. The
intermediary raises capital from investors, selects the service providers, contracts with government, works with the evaluation adviser and the independent
assessor to set and measure performance targets, and partners with the evaluation adviser to monitor and analyze interim results and suggest midcourse corrections. If the program meets performance targets, the government pays the
intermediary an agreed amount. The intermediary is responsible for repaying
the investors their capital plus a return on investment.
Id.
114 Id.
115 Id.
116 Id.
117 Id. In 2010, SIBs were first introduced in Britain to lower the recidivism rate at Her
Majesty’s Prison Peterborough. Caroline Preston, Getting Back More Than a Warm
Feeling, N.Y. TIMES, Nov. 9, 2012, at F1. Since then, New York has been among the first
states in the U.S. to try out these new instruments in the prison context. Id. Unfortunately,
because New York’s program is still new, conclusive results will not be available until 2016.
Id. Although the results are still unknown, feedback has been positive and participation
rates have been high. Id.
118 Proponents of SIBs note that SIBs offer many benefits to society. First, they provide
financial capital to cash-strapped nonprofit organizations with innovative ideas. See
Preston, supra note 117 (noting that SIBs will help governments spend taxpayer money
more efficiently because governments will only pay for programs that work). Second, SIBs
appeal to the growing market of “impact investors”: foundations and individuals who use
their investment capital not only to reap financial returns but also to benefit society. Id.
Lastly, SIBs shift all the risk of impact programs from the government to investors. Id.
119 Id.
TO

THE

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many stakeholders in the social impact bond program.120 Second,
access to capital may be limited, given the risky nature of these investments.121 Third, compensating investors may ultimately prove to be
unnecessarily costly to the government.122 Fourth, the investors who
are most likely to take such risks are the large institutions that would
have been granting these funds even in the absence of the bond program.123 Finally, using SIBs to fund programs in private prisons
ignores an essential stakeholder—private prison shareholders—further complicating the nature of the SIB program.124
b. Contractual Terms
Some academics have argued that the contractual negotiation
process is an adequate tool to remedy the ills of privatization.125 In
essence, payment can be conditioned on private prisons meeting cer120 These stakeholders include: (1) the direct beneficiaries of the social programs; (2) the
government; (3) nonprofit service providers; (4) investors; (5) intermediaries (who manage
the entire SIB project from beginning to end); (6) third-party evaluators (who periodically
monitor and adjust the program if need be); and (7) independent evaluators (who have the
final say as to whether performance benchmarks were met). MCKINSEY & CO., supra note
113, at 7.
121 See id. at 19 (“Simply because they are so new, SIBs carry risks—both in their structural model and in their execution—that cannot be entirely mitigated in the near term.”);
see also Preston, supra note 117 (“If the program falls short, the investors lose their money,
sparing taxpayers the costs of the program.”).
122 If a program is successful, the government will have to compensate each participant
enough to make the transaction and associated risk worthwhile. Though proponents of
SIBs claim that the program incentivizes financial savings, there is some concern that these
savings will not be realized because of the cost of compensating each stakeholder.
MCKINSEY & CO., supra note 113, at 18, 19. McKinsey notes that “multiple funding
streams, limited data systems, and lack of cross-agency coordination may inhibit government’s ability to fully recognize the financial savings from a SIB.” Id. at 18.
123 See id. at 18 (noting that foundations will most likely participate due to their familiarity with program-related and mission-based investing, whereas other qualified investors
will be hesitant to fund an untested model).
124 Private prisons—as currently structured—will tend to oppose programs that threaten
their future revenue streams. SIBs may fall within this category, because SIBs offer no
direct benefit to private prison shareholders, but do indirectly aim to decrease future
potential private prison revenue in the form of recidivism.
125 See, e.g., Jody Freeman, The Contracting State, 28 FLA. ST. U. L. REV. 155 (2000)
(arguing that contractual design is the way to solve problems in government outsourcing).
Theoretically, government regulation is another tool. However, government regulation of
private prisons is seldom used because the contractual process is generally considered an
equally strong tool to regulate private prison behavior. If private prisons breach certain
contractual provisions, the government-customer generally would have the option to terminate the contract. But see supra Part II.C (discussing disincentives to effective government oversight of private prisons). Additionally, if the state went on to regulate private
prisons, this would be in conflict with the state’s goal of privatization—that is, limited government interference with market forces; furthermore, private-prison lobbyists would have
a strong influence on any regulations enacted. See Christine Bowditch & Ronald S.
Everett, Private Prisons: Problems Within the Solution, 4 JUST. Q. 441, 449–50 (1987)

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tain goals, such as lowering the number of sexual assaults. Unfortunately, this solution has failed to meaningfully reduce recidivism or
improve prisoner quality of life.
Contractual agreements have been inadequate for two main reasons: First, contracts tend to be incomplete, and second, there is a lack
of adequate oversight. Private prison contracts typically describe the
general services sought, but do not dictate how that service should be
provided.126 This latitude may allow private prison companies to take
shortcuts in order to provide services at the lowest possible cost. In
addition to lack of enforceable terms in contracts, agency capture and
political pressure may prevent the government-customer from effectively monitoring compliance.127 In contrast, the PPR credit shifts the
burden of proving satisfactory performance onto the private prison
company; while the government-customer sets the benchmarks for
acceptable performance, the private prison company must show that it
has earned the PPR credit.
CONCLUSION
The U.S. prison system is plagued with a wide variety of problems
arising from a wide variety of sources. My proposal is not a cure-all. It
is an attempt at a pragmatic, solutions-oriented approach that utilizes
the institutional structures already in place today. The PPR credit is
founded on a belief in the positive power of market forces and the
potential social benefit associated with properly-aligned corporate
incentives. At the very least, I hope that this Note will stimulate conversation that improves rehabilitative prospects for the prison population of today, and stems the tide of recidivism for tomorrow.

(describing how the “capital-intensive” nature of private prisons will lead to efforts to protect developers’ interests with powerful lobbies).
126 Developments in the Law—the Law of Prisons, 115 HARV. L. REV. 1838, 1877–78
(2002); see also Oliver Hart, Andrei Shleifer & Robert W. Vishny, The Proper Scope of
Government: Theory and an Application to Prisons, 112 Q.J. ECON. 1127, 1134 (1997)
(describing how contracts must be sufficiently vague to allow for cost-cutting innovations
without triggering a breach).
127 See supra Part II.A.