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Private Prisons: An Evaluation of Economic and Ethical Implications

January 25, 2018
Today private prisons house about 126,000 federal and state inmates [1]. Orders issued under the Obama Administration to phase out the use of private prisons are now being reversed under the Trump Administration, which has caused some debates over the efficacy of private prisons to resurface. Chiefly, this reversal has sparked controversy over the economic benefits of private prisons in America, as the most avid dissidents highlight problems with the economic argument for private prisons and even moderate objectors point to inconclusive data as a poor indicator of their advantages.

(Image: US prison population since 1978. Source: Bureau of Justice Statistics)

(Image: US prison population since 1978. Source: Bureau of Justice Statistics)

A Brief History of Privatization

Today’s trend toward privatization of prisons truly began during the 1980s, as President Reagan expanded the “War on Drugs” that had been declared by his predecessor, President Nixon, in 1971[2]. President Reagan’s Administration oversaw the passing of numerous pieces of legislation, such as the Comprehensive Crime Control Act of 1984, which increased penalties for drug crimes[3]. As regulations cracked down on non-violent offenders, outside contractors became necessary to reduce the burden on the size of prisons.

Over time, the incarceration rate continued to grow, augmenting the United States’ move towards privatization. As of 2015, private prisons were approximately responsible for seven percent of state prisoners and 18 percent of federal prisoners [4].

During the Obama Administration, former Deputy Attorney General Sally Yates issued a memorandum making the case for ending federal involvement with privatized prisons by suggesting federal prison population was beginning to see a decline [5]. Nevertheless, privatization now stands to increase during the Trump Administration, as Attorney General Jeff Sessions has rescinded Yates’ guidance [6].

(Image: Percent of incarcerated population in private prisons, 2014. Source: Penn Wharton Public Policy Initiative)

(Image: Percent of incarcerated population in private prisons, 2014. Source: Penn Wharton Public Policy Initiative)

What Defines Private Prisons

Private prisons are defined as nongovernmental entities that work on behalf of the state [7], and most of these private prisons are located in southern and western states [8]. Three private prison companies control over 96% of the market: GEO, CoreCivic, and Management and Training Corporation [9].

Contractual agreements between government and specific corporations assign prisoners to either public or private facilities. Unfortunately, concrete data is not available to the public about exactly what factors cause individuals to be sent to private over public facilities.

Nevertheless, private prisons hold a level of selectiveness in regards to inmates. As private facilities have the ability to contract with multiple jurisdictions and can hold inmates for different levels of government, this flexibility allows them to cut costs by avoiding certain types of prisoners. For example, contracts in Arizona mandate that high-risk and medically costly prisoners cannot be sent to private prisons. Minnesota reportedly has similar contracts for prisoners over the age of 60 with high medical costs [10]. These examples of financially-based selectivity differentiate private and public prisons, which becomes important when trying to understand the costs of different prison types.

Going Further with Economics: Conflicting Research and its Implications

In general debate, advocates of private prisons often cite comparable (if not favorably low) costs for private prisons over public facilities [11]. Private prisons, however, do not typically disclose financial data to the public, thus it is difficult to find data that substantiate these claims [12]. And when research is possible, data can be inconclusive. A study 1996 by the General Accounting Office compared public and private prisons in Texas, California, Tennessee, New Mexico, and Washington and found that there were no clear difference in cost [13]. More recently, research in Florida compared two private facilities to a public one and found that, in terms of average cost per prisoner housed, one of the two was 0.2% more expensive and the other was 3.9% cheaper. [14] This sort of conflicting data complicates the debate and makes it more difficult to rely completely on the economic argument when advocating for private prisons.

In addition, low- to mid-security inmates make up 90% of private prisons (as opposed to 69% in public prisons) making comparisons of absolute costs misleading, as they lack nuance [15]. Looking at the inmate security level, a Brookings study in Mississippi found that each prisoner in a private prison actually costs the state $46.50 a day, while each prisoner in a public prison costs the state anywhere from $35.11 to $40.47 per day [16].

This is not to say that studies in favor of private prisons do not exist. In one interesting example from Temple University, research found a 14% savings for minimum-security prisons (often private) over more maximum-security, public facilities. The university later distanced itself from these findings, however, after it was revealed that the study had been funded by private prison corporations.[17]

Perhaps more important than the financial arguments against private prisons is the underlying motives behind these corporations’ financial decisions. When private prison companies contract with state and federal governments, they are paid a predetermined “price per head” for their population of prisoners [18]. Many of these corporations are traded publicly, and thus their highest fiduciary responsibility is to their stakeholders and not to cut costs for governments. (For context, stock in CoreCivic and the GEO Group has risen 50% and 21%, respectively, in the last year [19].) One way private prisons cut costs is by including limited medical coverage in their contracts and making states foot the bill for additional medical costs [20]. With this business model in place, one can see that private prisons often obscure their true costs and any possible savings.


Given the debate surrounding private prisons and cost-effectiveness, the strongest arguments for or against these facilities would rely on clear data and case studies. In the absence of much of this raw data due to the privacy of private corporations, analyses must rely instead on existing studies and general inferences based on business-models and key goals.

Nevertheless, the lack of unassailable economic data casts doubt on the argument that private prisons cost less. This doubt is further exacerbated by knowledge of private prisons’ financial structure, which must serve its investors first before it serves the federal or state government. When analyzing the costs and benefits of private prisons, one must examine the economic impact of private prison facilities on the general population.

As prison costs are broken down into the costs per each additional inmate housed and this trend toward privatization is the result of increasing inmate populations, one solution is to decrease the amount of people in prisons at any given time. Without even addressing the larger issue of sentencing, a possible way to address this is to push legislators to support the creation of more transitional housing. This would address the fact that some individuals remain in jail past their release date because they have nowhere to go [20]. For example, some lose eligibility to live in public housing due to their parole status [21].

Additionally, the issue of overcrowding in public prisons could be addressed with new guidelines on pretrial detainment, which adds daily to the spacing issue in prisons while many people detained before trial are simply more likely to be poor and thus not represented by legal counsel [22].

The larger problem of mass incarceration in America is a complex and divisive issue that must be further examined by lawmakers, but through preliminary policy around new housing and pretrial measures, the resulting decrease in sitting prison populations can hopefully ease the burden on public prison facilities and allow the country to move away from costly privatization.

Student Blog Disclaimer
  • The views expressed on the Student Blog are the author’s opinions and don’t necessarily represent the Wharton Public Policy Initiative’s strategies, recommendations, or opinions.


  [1] http://www.pewresearch.org/fact-tank/2017/04/11/u-s-private-prison-population-has-declined-in-recent-years/

  [2] http://www.drugpolicy.org/issues/brief-history-drug-war

  [3] https://www.congress.gov/bill/98th-congress/senate-bill/1762

  [4] https://www.aclu.org/issues/mass-incarceration/privatization-criminal-justice/private-prisons

  [5] https://www.justice.gov/archives/opa/file/886311/download

  [6] http://www.cnn.com/2017/08/18/politics/private-prison-department-of-justice/index.html

  [7] http://www.jstor.org/stable/1147676?Search=yes&resultItemClick=true&searchText=((private&searchText=prisons))&searchUri=%2Faction%2FdoBasicSearch%3FQuery%3D%2528%2528private%2Bprisons%2529%2529&refreqid=search%3A644a2b23036f061418b23600988b45c2&seq=1#page_scan_tab_contents

  [8] http://journals.sagepub.com/doi/10.1177/2153368714539355, pp. 38

  [9] http://www.hamiltonproject.org/assets/files/private_prisons_technical_appendix.pdf

  [10] https://www.brookings.edu/wp-content/uploads/2016/10/es_20161021_private_prisons_economics.pdf

  [11] http://www.sciencedirect.com/science/article/pii/S1756061617300393

  [12] http://www.justicepolicy.org/uploads/justicepolicy/documents/gaming_the_system.pdf, pp. 16

  [13] Ibid.

  [14] https://www.washingtonpost.com/news/volokh-conspiracy/wp/2014/02/25/are-private-prisons-better-or-worse-than-public-prisons/?utm_term=.af19a3623ece

  [15] http://sentencingproject.org/wp-content/uploads/2016/01/Too-Good-to-be-True-Private-Prisons-in-America.pdf

  [16] https://www.brookings.edu/wp-content/uploads/2016/10/es_20161021_private_prisons_economics.pdf

  [17] http://temple-news.com/news/criticism-professors-study-grows-university-finishes-ethics-review/

  [18] http://www.jstor.org/stable/1147676?Search=yes&resultItemClick=true&searchText=((private&searchText=prisons))&searchUri=%2Faction%2FdoBasicSearch%3FQuery%3D%2528%2528private%2Bprisons%2529%2529&refreqid=search%3A644a2b23036f061418b23600988b45c2&seq=16#page_scan_tab_contents

  [19] http://fortune.com/2016/11/15/trump-prison-stocks-cca-elliott-paul-singer/

  [20] https://www.aclu.org/banking-bondage-private-prisons-and-mass-incarceration


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