Emory Law Journal

Prison Accountability and Performance Measures
Alexander Volokh Associate Professor, Emory Law School, avolokh@emory.edu. I am grateful to Michael J. Broyde, Russell C. Gabriel, Leonard Gilroy, Linda Hardyman, Erica J. Hashimoto, Peter H. Kyle, Christina Mulligan, Carl Nink, Usha Rodrigues, Joanna E. Saul, Sarah M. Shalf, Vladimir Volokh, and the participants at the Emory/UGA joint faculty colloquium for their input and assistance. I am also grateful to Kedar Bhatia and Julia Hueckel for their able research assistance, and to the law librarians at Emory Law School. Thanks also to the organizers and panelists of the Randolph W. Thrower Symposium, Privatization: Managing Liability and Reassessing Practices in Local and International Contexts, on February 7, 2013. A previous version of this Article was presented as the keynote address at the Vermont Law Review's symposium, Prison Privatization: Optimizing Our Use of a Privatized Resource, on March 23, 2013.

Abstract

A few decades of comparative studies of public vs. private prison performance have failed to give a strong edge to either sector in terms of quality. That supposed market incentives haven’t delivered spectacular results is unsurprising, since, by and large, market incentives haven’t been allowed to work: outcomes are rarely measured and are even more rarely made the basis of compensation, and prison providers are rarely given substantial flexibility to experiment with alternative models.

This Article argues that performance measures should be implemented more widely in evaluating prisons. Implementing performance measures would advance our knowledge of which sector does a better job, facilitate a regime of competitive neutrality between the public and private sectors, promote greater clarity about the goals of prisons, and, perhaps most importantly, allow the use of performance-based contracts.

Performance measures and performance-based contracts have their critiques, for example: (1) the theoretical impossibility of knowing the proper prices, (2) the ways they would change the composition of the industry, for instance, by reducing public-interestedness or discouraging risk-averse providers, and (3) the potentially undesirable strategic behavior that would result, such as manipulation in the choice of goals, distortion of effort away from hard-to-measure dimensions or away from hard-to-serve inmates, or outright falsification of the numbers. I argue that these concerns are serious but aren’t so serious as to preclude substantial further experimentation.

“Here arises a feature of the Circumlocution Office, not previously mentioned in the present record. When that admirable Department got into trouble, and was, by some infuriated member of Parliament . . . attacked on the merits . . . as an Institution wholly abominable and Bedlamite; then the noble or right honourable [member] who represented it in the House, would smite that member and cleave him asunder, with a statement of the quantity of business (for the prevention of business) done by the Circumlocution Office. Then would that noble or right honourable [member] hold in his hand a paper containing a few figures, to which, with the permission of the House, he would entreat its attention. . . . Then would the noble or right honourable [member] perceive, sir, from this little document, which he thought might carry conviction even to the perversest mind . . . , that within the short compass of the last financial half-year, this much-maligned Department . . . had written and received fifteen thousand letters . . . , had made twenty-four thousand minutes . . . , and thirty-two thousand five hundred and seventeen memoranda . . . . [T]he sheets of foolscap paper it had devoted to the public service would pave the footways on both sides of Oxford Street from end to end, and leave nearly a quarter of a mile to spare for the park . . . ; while of tape—red tape—it had used enough to stretch, in graceful festoons, from Hyde Park Corner to the General Post Office. . . . No one . . . would [then] have the hardihood to hint that the more the Circumlocution Office did, the less was done, and that the greatest blessing it could confer on an unhappy public would be to do nothing.”

Charles Dickens, Little Dorrit 1Charles Dickens, Little Dorrit 517–18 (Oxford Univ. Press 1989) (1857).

“The results obtained from ENRD’s civil and criminal cases in fiscal year 2012 alone were outstanding. We secured over $397 million in civil and stipulated penalties, cost recoveries, natural resource damages, and other civil monetary relief, including almost $133 million recovered for the Superfund. We obtained over $6.9 billion in corrective measures through court orders and settlements, which will go a long way toward protecting our air, water and other natural resources. We concluded 47 criminal cases against 83 defendants, obtaining nearly 21 years in confinement and over $38 million in criminal fines, restitution, community service funds and special assessments.”

DOJ’s Environment & Natural Resources Division Annual Report, 2012 2Env’t & Natural Res. Div., U.S. Dep’t of Justice, ENRD Accomplishments Report Fiscal Year 2012, at 8 (2013).

Introduction

“Isn’t everything to be said on [private prisons] already in print?” asks Sharon Dolovich. 3Sharon Dolovich, How Privatization Thinks: The Case of Prisons, in Government by Contract: Outsourcing and American Democracy 128, 129 (Jody Freeman & Martha Minow eds., 2009). She means the question to be merely rhetorical; and so do I. 4Not that her perspective is the same as mine, but we both agree that there’s still something left to say on the subject. The comparative effectiveness debate, to the extent it’s relevant 5Dolovich herself is wary of premature engagement with the comparative effectiveness debate without having sorted through the necessary normative issues beforehand. See Dolovich, supra note 3, at 128–29; Sharon Dolovich, State Punishment and Private Prisons, 55 Duke L.J. 437, 447 n.20 (2005). —and I think it is 6See generally Alexander Volokh, Privatization and the Elusive Employee–Contractor Distinction, 46 U.C. Davis L. Rev. 133 (2012). —has stalled, simply because the empirical literature, exhaustive as it is, is so bad. “The current weight of the evidence on prison privatization in the United States is so light that it defies interpretation,” write prison researcher Gerald Gaes and his coauthors. 7Gerald G. Gaes et al., Measuring Prison Performance: Government Privatization and Accountability 184 (2004). (The theory isn’t much better: the same authors characterize prison performance as a “theoretically bereft domain.”) 8Id. at 123. To intelligently choose between public and private provision, we should at least know which sector costs less, but we don’t; and we should at least know which sector provides higher quality, but we don’t have a great sense of that either. 9These aren’t the only things we should know. For instance, we can also care about where accountability is greater, which sector might be more likely to push the substantive criminal law in a more pro-incarceration direction, and the like. See, e.g., Alexander Volokh, Privatization and the Law and Economics of Political Advocacy, 60 Stan. L. Rev. 1197, 1199–1205 (2008); Developments in the Law—The Law of Prisons, 115 Harv. L. Rev. 1838, 1868–91 (2002).

This seems puzzling: readers of the voluminous debate on private prisons can be forgiven for thinking that market incentives should make private prison firms either (1) cut wasteful expenditures and produce innovative services 10See, e.g., Geoffrey F. Segal & Adrian T. Moore, Weighing the Watchmen: Evaluating the Costs and Benefits of Outsourcing Correctional Services, Part II: Reviewing the Literature on Cost and Quality Comparisons 15 (Reason Pub. Policy Inst., Policy Study No. 290, 2002); Samuel Jan Brakel & Kimberly Ingersoll Gaylord, Prison Privatization and Public Policy, in Changing the Guard: Private Prisons and the Control of Crime 125, 134–43 (Alexander Tabarrok ed., 2003). or (2) cut corners on essential inmate care and security and lead to a humanitarian disaster. 11See, e.g., Dolovich, supra note 5, at 474–80. Let’s focus on the positive claims for private prisons: if the private sector is so clearly superior, shouldn’t the difference hit us between the eyes? 12See, e.g., Philippe C. Schmitter, The “Organizational Development” of International Organizations, 25 Int’l Org. 917, 932 (1971) (calling this the “interocular impact test”).

On second thought, this isn’t so puzzling after all. The advantages of market provision are often said to be that, what with the rigidities and low-incentive structure of government agencies, private firms have greater incentive and greater flexibility to figure out how to achieve any desired level of quality. But this assumes that (1) particular levels of quality are desired or encouraged, and (2) private firms are given the flexibility to achieve these levels. It turns out that both of these assumptions are wrong.

Let’s take the quality problem first. Why not tally up the quality at a public prison, do the same at a comparable private prison, and compare the two quality measures? The trouble here is that—despite the scores of studies that have been produced purporting to measure quality differences—good performance measures are rarely used. As I document in Part I, this means that comparative quality studies are hard to interpret if one wants to know which sector is better. (This hasn’t prevented both partisans and detractors of private prisons from producing loosely reasoned pieces that oversell the findings of their favorite studies.)

It doesn’t have to be that way. Criminologists have produced no shortage of performance measures that are appropriate for evaluating prisons, using variables like in-prison violence, the quality of prison health care, the degree of crowding, and—which I think is immensely important—recidivism. 13I first (briefly) advocated performance measures for prison accountability in my student note. See Developments in the Law—The Law of Prisons, supra note 9, at 1887–88; see also Francis T. Cullen et al., The Accountable Prison, 28 J. Contemp. Crim. Just. 77, 83 (2012) (“The core goal of the accountable prison is to reduce inmates’ recidivism.” (italics omitted)). The most important thing about a performance measure is that it measure performance, that is, outcomes. Inputs like money spent, guards hired, or programs offered are of quite limited value, since the whole point is to see whether the money spent is worthwhile, whether the guards hired are necessary, and whether the programs are effective. Outputs like the number of doctor visits or the number of graduates of rehabilitative programs—like the number of memos written by Dickens’s Circumlocution Office 14See supra text accompanying note 1. or the number of years of prison resulting from DOJ prosecutions 15See supra text accompanying note 2. —are also of limited value. Doctor visits might just be make-work; the rehabilitative programs may not actually be rehabilitative. (The Circumlocution Office, whose function is to prevent things from being done, 16Dickens, supra note 1, at 104–23. has a zero or negative contribution to performance; and the prosecutions that maximize prison time aren’t necessarily the same as those that most improve the environment.) What we care about—prisoner health, decent conditions, actual rehabilitation—are the outcomes that we should actually measure, to the extent possible. 17See Beryl A. Radin, Challenging the Performance Movement: Accountability, Complexity, and Democratic Values 15–16 (2006) (defining “input,” “output,” “outcome,” and other terms).

Why should we use performance measures? There are several reasons, which I canvass in Part II.

First, it’s good just to know whether the public or private sector has higher quality, for instance in evaluating whether one’s state should outsource or insource a particular project, or whether it should be one of the nineteen states that don’t use private prisons at all. 18See E. Ann Carson & William J. Sabol, U.S. Dep’t of Justice, Bureau of Justice Statistics, Bull. No. NCJ 239808, Prisoners in 2011, at 32 tbl.15 (2012) (listing Arkansas, Delaware, Illinois, Iowa, Maine, Massachusetts, Michigan, Minnesota, Missouri, Nebraska, Nevada, New Hampshire, New York, North Dakota, Oregon, Rhode Island, Utah, Washington, and West Virginia as states with no inmates in private prisons in 2011). Naturally, many factors determine performance other than the quality of the management and the facilities: for instance, a prison can have better performance numbers because it was sent a better crop of people. But certainly having performance measures is better than useless.

Second, using performance measures would help to implement a regime of competitive neutrality, where the public and private sectors could bid against each other and individual projects could shuffle from one sector to another. Competitive neutrality might be better than an all-public or all-private regime, but to implement it properly, the auctions should be evenhanded, which means that proposed costs and proposed quality targets should be fairly comparable. Performance measures would allow a winning contractor to commit to deliver a particular level of performance, and would allow governments to levy the appropriate contractual fine if this level isn’t achieved (or grant the appropriate reward if the level is exceeded).

Third, it would help policymakers express what’s desirable in prisons. One would think that this had been done already; but prison contracts are written in input and output terms because this is largely how the industry works and thinks. Performance measures have been a byproduct of the debate over prison privatization: the different sides in the debate needed them to argue in favor of or against privatization; and the development of these measures has in turn spurred serious thinking about what prisons should accomplish, which has had accountability benefits for the public sector as well.

Perhaps most importantly, the use of performance measures would allow the spread of performance-based contracting, where—instead of levying a fine for not delivering a particular level of performance—one varies the contract fee continuously with the level of performance delivered. Once accountability is tied to actual performance—as is actually being done in the U.K.—giving prison providers the flexibility to choose how to do their job becomes more attractive.

Part III discusses critiques of using performance measures as part of a compensation scheme.

One concern is that the true social benefits of various aspects of performance are unknowable, either in principle or in practice, so that determining the proper prices will inevitably fail. Where a service is closely bound up with justice concerns, a focus on efficiency pricing may be inappropriate: it might demean the service or give insufficient weight to non-efficiency goals.

A second problem is that the use of performance measures will alter the composition of providers in the industry, in ways that are perhaps undesirable. One way this might happen is that, in the presence of monetary incentives, public-interested people may be less attracted to corrections. A different way performance measures can alter the composition of the industry is by increasing risk for providers. Providers can only control inputs, and the connection between inputs and outcomes is highly variable, because it depends on a great many variables, many of which are beyond the prison’s control—such as general social conditions or the underlying quality of the inmates. The relationship between any of these variables and outcomes is not very well known. One might care about the fairness of rewarding or penalizing providers based on factors beyond their control, though in an auction system, such windfalls will be canceled out by competitive bidding. More seriously, the riskiness might bias the set of available providers in favor of the largest and best-capitalized firms, and perhaps discourage experimentation with risky but promising techniques. This means that the sensitivity of price to outcomes might have to be limited, which might also limit the incentive effects.

A third problem is that providers may engage in undesirable strategic behavior. They might manipulate the performance goals so they are easy to meet. They might focus their effort on the measurable dimensions of performance and slight the unmeasurable ones. (For example, what are the true outcomes of the justice system? Some outcomes, like case backlogs, are measurable, but other important outcomes, like accuracy of adjudication, aren’t—and measuring one runs the risk of distorting the agency’s effort away from the unmeasured outcomes.) 19One might think that the reversal rate is a measure of accuracy of adjudication. But this isn’t true because (1) the cases selected for appeal aren’t random (in the absence of some special process to verify accuracy), and (2) given deferential standards of review, judges can work to insulate their decisions from appellate review if they’re so inclined—for instance, by making them more intensely fact-based. Similarly, providers will want to choose the easiest-to-treat populations (“creaming” or “cherry-picking”), and (given a population) fail to treat the hardest-to-treat members (“parking”). And, of course, any system based on particular numbers comes with the risk that someone might try to falsify the numbers.

The good news is that, for prisons, there’s hope that these concerns can be fairly addressed. At the very least, these concerns don’t seem so serious as to preclude far more experimentation than has been happening so far. We actually have access to reasonably good performance measures that reasonably cover the important dimensions of prison quality, none of which have to be limited to efficiency-based measures. These measures should be set by corrections departments, not by contractors. Riskiness can be addressed, at least in part, by only making part of the payment depend on performance. Social impact bonds have some promise in encouraging nonprofit-sector financing; in any event, the prison market is already highly concentrated, so there is currently no vast population of nonprofits and small companies to lose. Cherry-picking can be addressed by giving contractors no say in what inmates they’re given, and parking can be addressed, at least in part, by making monetary rewards depend on observable characteristics of the inmate (if, indeed, it’s a problem at all). Outright falsification of performance measures is a serious problem, which requires seriously investing in monitoring and ensuring robust disclosure regimes.

None of these are perfect fixes, but we don’t need perfection; we just need an improvement over the status quo.

I. The Failure of Comparative Effectiveness Studies

Somewhat surprisingly, for all the ink spilled on private prisons over the last thirty years, we have precious little good information on what are surely some of the most important questions: when it comes to cost or quality, are private prisons better or worse than public prisons?

It’s safe to say that, so far at least, the political process hasn’t encouraged rigorous comparative evaluations of public and private prisons. Some states allow privatization without requiring cost and quality evaluations at all. 20See Alexis M. Durham III, Evaluating Privatized Correctional Institutions: Obstacles to Effective Assessment, Fed. Probation, June 1988, at 65, 67; Developments in the Law—The Law of Prisons, supra note 9, at 1873–74. The nineteen states that don’t privatize 21See supra note 18 and accompanying text. might, for all I know, be right to do so, but of course their stance doesn’t promote comparative evaluation.

When studies are done, they’re usually so inadequate from a methodological perspective that we can’t reach any firm comparative conclusions. Section A below discusses the problems with cost comparison studies, and section B discusses the problems with quality comparison studies. Section C takes a broader view and notes that even well-done comparative effectiveness studies don’t answer all our questions.

A. Which Sector Costs Less?

1. Difficulties in Calculating Costs

How do we determine whether the private sector costs more or less than the public sector? Ideally, we could work off of a large database of public and private prisons and run a regression in which we controlled for jurisdiction, demographic factors, size, and the like. In practice, this large database doesn’t exist, and so the typical study chooses a small set of public and private prisons that are supposedly comparable.

Unfortunately, this comparability tends to be elusive; the public and private facilities compared often “differ in ways that confound comparison of costs.” 22Douglas McDonald et al., Private Prisons in the United States: An Assessment of Current Practice 33 (1998). Sometimes no comparable facilities exist. 23See id. at 45 (making this claim about the Arizona facilities compared in Charles W. Thomas, Ariz. Dep’t. of Corr., Comparing the Cost and Performance of Public and Private Prisons in Arizona (1997)); see also Scott D. Camp & Gerald G. Gaes, Fed. Bureau of Prisons, Private Prisons in the United States, 1999: An Assessment of Growth, Performance, Custody Standards, and Training Requirements 15 (2000). Even where there are two prisons in the jurisdiction housing inmates of the same sex and security classification, they generally differ in size, age, level of crowding, inmate age mix, inmate health mix, and facility design. 24See McDonald et al., supra note 22, at 34–35; see also Robert B. Levinson, Okeechobee: An Evaluation of Privatization in Corrections, Prison J., Oct. 1985, at 75, 77. In particular, adjusting facilities to take into account different numbers of inmates is problematic, since facilities with more inmates, other things equal, benefit from economies of scale. 25Gerry Gaes, Cost, Performance Studies Look at Prison Privatization, Nat’l Inst. Just. J., Mar. 2008, at 32, 34; Douglas C. McDonald, The Costs of Operating Public and Private Correctional Facilities, in Private Prisons and the Public Interest 86, 101 (Douglas C. McDonald ed., 1990).

The GAO explained recently that “[i]t is not currently feasible to conduct a methodologically sound cost comparison of BOP [Bureau of Prisons] and private low and minimum security facilities because these facilities differ in several characteristics and BOP does not collect comparable data to determine the impact of these differences on cost.” 26U.S. Gov’t Accountability Office, GAO-08-6, Cost of Prisons: Bureau of Prisons Needs Better Data to Assess Alternatives for Acquiring Low and Minimum Security Facilities 4 (2007). The data problem mostly comes from the private side: information collected by the BOP from private facilities isn’t necessarily reported the same way that public data are reported, and the reliability of the data is uncertain. 27Id. at 12–13. Moreover, “[w]hile private contractors . . . maintain some data for their records, these officials said that the data are not readily available or in a format that would enable a methodologically sound cost comparison at this time.” 28Id. at 5.

Not only do federal regulations not require that these data be collected, 29Id. at 13. but also, and more troublingly, at the time of the GAO study in 2007, the BOP didn’t believe there was value in developing the data collection methods that would make valid public-private cost comparison methods possible. 30Id. at 7, 19, 30. The BOP’s view seems to have been chiefly based on the fact that it used private contractors to run facilities for criminal aliens and wasn’t expecting to receive funding to run its own. Id. The BOP also believed that the Taft cost study, see infra text accompanying notes 56–59, was already a sufficient cost study. U.S. Gov’t Accountability Office, supra note 26, at 7, 19, 21, 30.

Probably more seriously, public and private prisons have accounting procedures that “make the very identification of comparable costs difficult.” 31McDonald et al., supra note 22, at 33; accord McDonald, supra note 25, at 88–89, 97–100.

First, public systems, unlike private ones, don’t spread the costs of capital assets over the life of the assets, which overstates public costs when the assets are acquired and understates them in all other years. 32McDonald et al., supra note 22, at 35.

Second, various public expenditures, including employee benefits and medical care, utilities, legal work, insurance, supplies and equipment, and various contracted services, are often borne by various other agencies in government, which might understate public costs by 30%–40%. 33Id. at 36. One of the often-ignored costs in the public sector is the cost of borrowing capital. 34See McDonald, supra note 25, at 106. Conversely, governments bear some of the costs of private firms, for instance, in various cases, contract monitoring, inspection and licensing, personnel training, inmate transportation, case management, and maintaining emergency response teams. 35McDonald et al., supra note 22, at 36–37.

And third, when public or private prisons incur overhead expenditures, there’s no obvious way of allocating overhead to particular facilities—Gerald Gaes gives a specific numerical example involving Oklahoma, a high-privatization state, where a difference in overhead accounting can alter the estimate of the cost of privatization by 7.4%. 36See Gerald G. Gaes, The Current Status of Prison Privatization Research on American Prisons 17–18 (Feb. 2012) (unpublished manuscript), http://works.bepress.com/gerald_gaes/1 (“Other complications arise from the appropriate treatment of property, sales, or income taxes paid by private contractors, as well as profits from inmate phone calls and commissary accounts.”); see also McDonald et al., supra note 22, at 37. Private companies are also loath to divulge their own financial details. See McDonald, supra note 25, at 89; see also Office of Program Policy Analysis & Gov’t Accountability, Fla. Legislature, Report No. 95-48, Performance Audit of the Gadsden Correctional Institution 2 (1996); Pub. Accounts Comm., Legislative Assembly, N.S.W. Parliament, Report No. 13/53 (No. 156),Value for Money from NSW Correctional Centres 23 (2005).

As a bottom-line matter, McDonald says “the uncounted costs of public operation are probably larger than of private operation”; 37McDonald, supra note 25, at 100. I tend to agree, but it’s hard to say for sure.

2. Competing Cost Estimates

The best way to see the importance of various assumptions is to look at a handful of cases where different people tried to estimate the same cost. Without committing myself to which way is correct, I’ll provide three examples: from Texas in 1987, from Florida in the late 1990s, and from the federal Taft facility in 1999–2002.

a. Texas

In Texas, private prisons were authorized in 1987 with the passage of Senate Bill 251, 38C. Elaine Cummins, Private Prisons in Texas, 1987–2000, at 15 (2000) (unpublished Ph.D. dissertation, American University) (on file with author). which required that private prisons show a 10% savings to the state compared to public prisons. 39Id. at 42; see also Tex. Gov’t Code Ann. § 495.003(c)(4) (West 2012). Calculating the per-diem cost of public incarceration in Texas thus became important, since the maximum contract price for private providers would be 90% of that cost.

The Texas Department of Corrections 40Now absorbed into the Texas Department of Criminal Justice. See Tex. Dep’t of Criminal Justice, Agency Strategic Plan: Fiscal Years 2013–17, at 2 (2012). came up with an estimate of $27.62 per prisoner per day. 41Cummins, supra note 38, at 155. The Legislative Budget Board, however, proposed a number of additions to this cost, to better take into account the costs of complying with Ruiz v. Estelle, 42503 F. Supp. 1265 (S.D. Tex. 1980) (requiring the Texas Department of Corrections to alleviate overcrowding, increase the number of guards and support staff, and provide adequate health services), aff’d in part, rev’d in part, 679 F.2d 1115 (5th Cir. 1982), amended in part, vacated in part, 688 F.2d 266 (5th Cir. 1982). building costs, the state’s cost to provide additional programs that private firms would be required to provide, and the like. 43See Cummins, supra note 38, at 156–57. All these adjustments raised the estimated per-diem cost by about 50%—to $41.67. 44Id. at 156 tbl.9. In the end, contracts were awarded within a range of $28.72 to $33.80—between the two estimates, though closer to the first one. 45Id. at 158; see also Gaes et al., supra note 7, at 87–88. One facility received an extra $7.41 for an “intensive substance abuse treatment program.” Cummins, supra note 38, at 158.

b. Florida

In Florida, the Office of Program Policy Analysis and Government Accountability (OPPAGA) compared two private facilities, Bay Correctional Facility and Moore Haven Correctional Facility, with a public facility, Lawtey Correctional Institution. 46Office of Program Policy Analysis & Gov’t Accountability, Fla. Legislature, Report No. 97-68, Review of Bay Correctional Facility and Moore Haven Correctional Facility 9 (1998) [hereinafter OPPAGA]. After various adjustments, OPPAGA calculated that the per-diem operating cost was $46.08 at Bay and $44.18 at Moore Haven, versus $45.98 at Lawtey; that is, Bay was 0.2% more expensive and Moore Haven 3.9% cheaper than the public facility. 47Id.

The Florida Department of Corrections had come up with its own numbers: $45.04 at Bay and $46.32 at Moore Haven, versus $45.37 at Lawtey 48Fla. Dep’t of Corr., 1996–97 Annual Report (1997), available at http://www.dc.state.fl.us/pub/annual/9697/budget.html. These estimates were analyzed in Fla. Dep’t of Corr., Privatization in the Florida Department of Corrections (1998). See Gaes et al., supra note 7, at 191 n.4. : Bay was 0.7% cheaper and Moore Haven 2.1% more expensive.

The Corrections Corporation of America (CCA), which operated Bay, submitted comments to the OPPAGA report, disputing its analysis. 49OPPAGA, supra note 46, at 55–61 (providing CCA’s comments with OPPAGA’s comments interspersed throughout). It disagreed that Lawtey was comparable, 50Id. at 57. and suggested its own adjustments to OPPAGA’s numbers for all three facilities. Under CCA’s analysis, Bay cost $45.16 and Moore Haven cost $46.32, versus $49.30 for Lawtey, which comes out to cost savings of 8.4% for Bay and 6.0% for Moore Haven. 51Id. at 61. (OPPAGA, understandably, disputed CCA’s modifications.) 52See id. at 59.

c. Taft

Perhaps the best example of competing, side-by-side cost studies comes from the evaluation of the federal facility in Taft, California, operated by The GEO Group.

A Bureau of Prisons cost study by Julianne Nelson compared the costs of Taft in fiscal years 1999 through 2002 to those of three federal public facilities: Elkton, Forrest City, and Yazoo City. 53Julianne Nelson, The CNA Corp., Competition in Corrections: Comparing Public and Private Sector Operations 10, 39 fig.4, 42 fig.5 (2005). The Taft costs ranged from $33.21 to $38.62; the costs of the three public facilities ranged from $34.84 to $40.71. 54Id. at 42 fig.5. Taft was cheaper than all comparison facilities and in all years, by up to $2.42 (about 6.6%)—except in fiscal year 2001, when the Taft facility was more expensive than the public Elkton facility by $0.25 (about 0.7%). 55See id. The study also compared actual GEO costs to hypothetical costs if Taft had been kept in-house. This comparison gave the edge to the public sector, id. at 25–26, but I don’t stress this result because it’s based on a comparison with a hypothetical public institution, not on actual public-sector costs. Sloppily averaging over all years and all comparison institutions, the savings was about 2.8%.

A National Institute of Justice study by Douglas McDonald and Kenneth Carlson 56Douglas C. McDonald & Kenneth Carlson, Contracting for Imprisonment in the Federal Prison System: Cost and Performance of the Privately Operated Taft Correctional Institution (Oct. 1, 2005) (unpublished manuscript), https://www.ncjrs.gov/pdffiles1/nij/grants/211990.pdf. found much higher cost savings. They calculated Taft costs ranging from $33.25 to $38.37, and public facility costs ranging from $39.46 to $46.38. 57Id. at 48 tbl.2.18. Private-sector savings ranged from 9.0% to 18.4%. Again averaging over all years and all comparison institutions, the savings was about 15.0%: the two cost studies differ in their estimates of private-sector savings by a factor of about five.

Why such a difference? First, the Nelson study (but not the McDonald and Carlson study) adjusted expenditures to iron out Taft’s economies of scale from handling about 300 more inmates each year than the public facilities. 58Gaes, supra note 25, at 34. Second, the studies differed in what they included in overhead costs, with the Nelson study allocating a far higher overhead rate. 59Id. at 34–35; Gaes, supra note 36, at 20.

These examples should be enough to give a sense of the complications in cost comparisons; given these difficulties, it’s not surprising that most studies have fallen short.

B. Which Sector Provides Higher Quality?

1. Difficulties in Figuring Out Quality

Moving on to quality comparisons, the picture is similarly grim. As with cost comparisons, sometimes no comparable facility exists in the same jurisdiction. 60See McDonald et al., supra note 22, at 54–55 (discussing Arizona facilities compared in Thomas, supra note 23); see also Gerald G. Gaes et al., The Performance of Privately Operated Prisons: A Review of Research, in McDonald et al., supra note 22, app. 2, at 12 (discussing Arizona facilities compared in Thomas, supra note 23). Some studies solve that problem by looking at prisons in different jurisdictions, an approach that has its own problems. 61See McDonald et al., supra note 22, at 55 (discussing Charles H. Logan, Well Kept: Comparing Quality of Confinement in Private and Public Prisons, 83 J. Crim. L. & Criminology 577 (1992)); see also Charles H. Logan, Well Kept: Comparing Quality of Confinement in a Public and a Private Prison (1991). (If one had a large database with several prisons in each jurisdiction, one could control for the jurisdiction, but this approach is of course unavailable when comparing two prisons, each in its own jurisdiction.) Many studies just don’t control for clearly relevant variables in determining whether a facility is truly comparable. 62See, e.g., Gaes et al., supra note 60, at 5 (criticizing the use of univariate methods in the comparison of Kentucky facilities in Urban Inst., Comparison of Privately and Publicly Operated Correctional Facilities in Kentucky and Massachusetts (1989)); id. at 18 (discussing the lack of information on characteristics of inmate populations in William G. Archambeault & Donald R. Deis, Jr., Cost Effectiveness Comparisons of Private Versus Public Prisons in Louisiana: A Comprehensive Analysis of Allen, Avoyelles, and Winn Correctional Centers (1996)); id. at 19 (discussing the lack of controls for differences in number of inmates at some comparison prisons in Archambeault & Deis, supra); see also, e.g., Gaes et al., supra note 7, at 51–53 (discussing Archambeault & Deis, supra); Scott D. Camp & Gerald G. Gaes, Private Adult Prisons: What Do We Really Know and Why Don’t We Know More?, in Privatization in Criminal Justice: Past, Present, and Future 283, 287 (David Shichor & Michael J. Gilbert eds., 2001) (critiquing Archambeault & Deis, supra, and Thomas, supra note 23).

Often, the comparability problem boils down to differences in inmate populations; one prison may have a more difficult population than the other, even if they have the same security level. Usually prisons have different populations because of the luck of the draw, 63See Gaes et al., supra note 60, at 4 (discussing the comparison of Kentucky facilities in Urban Inst., supra note 62, where the public sector had a more difficult adult population while the private sector had a more difficult juvenile population); id. at 9 (discussing Tenn. Select Oversight Comm. on Corr., Comparative Evaluation of Privately-Managed Corrections Corporation of America Prison (South Central Correctional Center) and State-Managed Prototypical Prisons (Northeast Correctional Center, Northwest Correctional Center) (1995)); id. at 11 (discussing Robert C. Thomas et al., Legislative Budget Comm., State of Wash., Department of Corrections Privatization Feasibility Study (1996)); id. at 20 (criticizing the use of the Angola facility as a comparison facility in Archambeault & Deis, supra note 62); id. at 20–21 (discussing that low urinalysis hit rates in Archambeault & Deis, supra note 62, could indicate a population less inclined to use drugs, and low medical risk scores could indicate a population less in need of serious medical care). but sometimes it’s by design, as happened in Arizona, when the Department of Corrections chose “to refrain from assigning prisoners to [a particular private prison] if they [had] serious or chronic medical problems, serious psychiatric problems, or [were] deemed to be unlikely to benefit from the substance abuse program that is provided at the facility.” 64Thomas, supra note 23, at 73. It’s actually quite common to not send certain inmates to private prisons; the most common restriction in contracts is on inmates with special medical needs. 65Camp & Gaes, supra note 23, at 21–22 (noting some restrictions in effect in 62.5% of the contracts surveyed; special medical needs restrictions in 50% of contracts; and other restrictions, including those for high-publicity inmates and gang members). Not that all prisons must have totally random assignment; it can be rational to tailor prisoner assignment to, say, the programming available at a prison. But such practices do have “the unintended effect of undermining cost comparisons.” 66Thomas, supra note 23, at 73. Another practice that undermines cost comparisons is contractual terms limiting the private contractor’s medical costs, 67See, e.g., Contract between the State of Tennessee and Corrections Corporation of America, RFS No.329.44-00408 § A.4.g.13)(a) (July 1, 2007), http://www.capitol.tn.gov/joint/committees/fiscal-review/archives/106ga/contracts/RFS%20329.44-00408%20Correction%20%28CCA%20-%20amendment%201%29.pdf [hereinafter Tennessee CCA 2007 contract] (“If the inmate is hospitalized, the Contractor shall not be responsible for Inpatient-Hospital Costs which exceed $4,000.00 per Inmate per admission.”); id. § A.4.g.13)(b) (“The Contractor shall not be responsible for the cost of providing anti-retroviral medications therapeutically indicated for the treatment of Inmates with AIDS or HIV infection.”). By its terms, this contract covers services at the South Central Correctional Center, id. § A.1.j, and runs from 2007 to 2010, id. § B.1. though nowadays it’s increasingly common for contracts to transfer all medical costs to the contractor. 68See, e.g., Notice of Request for Proposal, Ariz. Dep’t of Corr., 5000 Minimum/Medium Security Prison Beds, Solicitation No. 110054DC § 2.14.1 (Jan. 24, 2011) (on file with author) (“There is no medical cap per inmate, per year. The Contractor shall assume all health care related costs.”).

Some performance studies rely on surveys administered to a nonrandom sample of inmates 69Gaes et al., supra note 60, at 6 (discussing Dale K. Sechrest & David Shichor, Parole & Cmty. Servs. Div., Cal. Dep’t of Corr., Final Report: Exploratory Study of California’s Community Correctional Facilities (1994)). or potentially biased staff surveys, 70Gaes et al., supra note 60, at 24 (discussing staff surveys in Logan, supra note 61; Logan, supra note 61). or generally to populations of inmates or staff that aren’t randomly assigned to public and private prisons. 71See Gaes et al., supra note 7, at 74–76 (critiquing Judith Greene, Comparing Private and Public Prison Services and Programs in Minnesota: Findings from Prisoner Interviews, 11 Current Issues Crim. Just. 202 (1999); Judith Greene, Lack of Correctional Services, in Capitalist Punishment: Prison Privatization & Human Rights (Andrew Coyle et al. eds., 2003); Logan, supra note 61; Logan, supra note 61); see also Scott D. Camp et al., Quality of Prison Operations in the US Federal Sector: A Comparison with a Private Prison, 4 Punishment & Soc’y 27, 32–34 (2002) [hereinafter Camp et al., Quality of Prison Operations]. For a general discussion of methods, see Scott D. Camp et al., Creating Performance Measures from Survey Data: A Practical Discussion, Corrections Mgmt. Q., Winter 1999, at 71. Survey data aren’t useless, but they’re rarely used with the appropriate sensitivity to its limitations. 72See Richard W. Harding, Private Prisons and Public Accountability 115–19 (1997). The higher-quality survey-based studies don’t give the edge to either sector. 73See Camp et al., Quality of Prison Operations, supra note 71, at 49–50; Scott D. Camp et al., Using Inmate Survey Data in Assessing Prison Performance: A Case Study Comparing Private and Public Prisons, 27 Crim. Just. Rev. 26, 31 (2002); see also Gaes et al., supra note 7, at 83.

Most damningly, many studies don’t rely on actual performance measures, 74Gaes et al., supra note 60, at 9 (discussing Tenn. Select Oversight Comm. on Corr., supra note 63). relying instead on facility audits that are largely process-based. 75Not that prison audits are useless; Gerald Gaes, in fact, who is a big booster of performance measurement, discusses how audits could be improved to be made more useful. Gaes et al., supra note 7, at 31–37. Some supposed performance measures don’t necessarily indicate good performance, 76See Gaes et al., supra note 60, at 20 (discussing, in the context of Archambeault & Deis, supra note 62, how a low count of disciplinary actions could indicate either good or bad performance); id. at 25–27 (discussing similar difficulties in interpreting items in Logan, supra note 61; Logan, supra note 61). especially when the prisons are compared based on a “laundry list” of available data items (for instance, staff satisfaction) whose relevance to good performance hasn’t been theoretically established. 77Camp & Gaes, supra note 62, at 286 (internal quotation marks omitted).

Gerald Gaes and his coauthors conclude that most studies are “fundamentally flawed,” and agree with the GAO’s conclusion that there is “little information that is widely applicable to various correctional settings.” 78Gaes et al., supra note 60, at 31 (internal quotation marks omitted) (citing U.S. Gen. Accounting Office, GAO/GGD-96-158, Private and Public Prisons: Studies Comparing Operational Costs and/or Quality of Service 11 (1996)).

I would add that accountability mechanisms vary widely—the standard U.S. model, the Florida model, and the U.K. model are different, 79See, e.g., Harding, supra note 72, at 158–65 (describing the “basic model” of accountability, the U.K. model, and the Florida model, and proposing a new model); David E. Pozen, Managing a Correctional Marketplace: Prison Privatization in the United States and the United Kingdom, 19 J.L. & Pol. 253, 276–81 (2003) (comparing American and British accountability systems). and these in turn differ from the French model 80See Jon Vagg, Prison Systems: A Comparative Study of Accountability in England, France, Germany, and the Netherlands 305–07 (1994). or the model proposed for prison privatization in Israel before the Israeli Supreme Court invalidated the experiment. 81See HCJ 2605/05 Academic Ctr. of Law & Bus., Human Rights Div. v. Minister of Fin. ¶ 18 [2009] (Isr.), available at http://elyon1.court.gov.il/files_eng/05/050/026/n39/05026050.n39.pdf; Volokh, supra note 6, at 180–85, 198–99 (discussing this opinion). When a prison study finds some result about comparative quality, that tells us something about comparative quality within that accountability structure; if a private prison performed inadequately under one accountability structure, it might do better under a better one. 82Gaes, supra note 36, at 30, also calls for more study of different accountability structures.

As an example of the problems with current quality metrics, consider the performance evaluations of the private federal Taft facility. As with the cost studies discussed above, 83See supra text accompanying notes 53–57. we have two competing studies, the National Institute of Justice one by McDonald and Carlson 84McDonald & Carlson, supra note 56. and a Bureau of Prisons study by Scott Camp and Dawn Daggett 85Scott D. Camp & Dawn M. Daggett, U.S. Dep’t of Justice, Fed. Bureau of Prisons, Evaluation of the Taft Demonstration Project: Performance of a Private-Sector Prison and the BOP (2005), http://149.101.37.70/news/research_projects/published_reports/pub_vs_priv/orelappin2005.pdf. —the companion paper to Julianne Nelson’s cost paper. 86Nelson, supra note 53.

The Bureau of Prisons has evaluated public prisons by the Key Indicators/Strategic Support System since 1989. 87McDonald & Carlson, supra note 56, at 119; see also infra text accompanying notes 305–06. Taft, alas, didn’t use that system, but instead used the system designed in the contract for awarding performance-related bonuses. 88Gaes, supra note 25, at 35; infra text accompanying note 172. Therefore, McDonald and Carlson could only compare Taft’s performance with that of the public comparison prisons on a limited number of dimensions, 89McDonald & Carlson, supra note 56, at 119. and many of these dimensions—like accreditation of the facility, staffing levels, or frequency of seeing a doctor 90Id. at 143. —aren’t even outcomes. Taft had lower assault rates than the average of its comparison institutions, though they were within the range of observed assault rates. 91Id. at 126, 127 fig.4.2. To focus on the three comparison prisons from the cost analyses, Elkton’s assault rate was similar to what would have been expected, while Taft, like Forrest City and Yazoo City, had lower rates than what would have been expected. Gaes, supra note 25, at 36. Yazoo City’s was the lowest. Id. No inmates or staff were killed. 92McDonald & Carlson, supra note 56, at 128. There were two escapes, which was higher than at public prisons. 93Id. Drug use was also higher at Taft, as was the frequency of submitting grievances. 94Id. at 143. On this very limited analysis, Taft seems neither clearly better nor clearly worse than its public counterparts.

The Camp and Daggett study, on the other hand, created performance measures from inmate misconduct data, 95Camp & Daggett, supra note 85, at 35. and concluded not only that Taft “had higher counts than expected for most forms of misconduct, including all types of misconduct considered together,” but also that Taft “had the largest deviation of observed from expected values for most of the time period examined.” 96Id. at 59–60. Camp and Daggett’s performance assessment was thus more pessimistic than McDonald and Carlson’s. 97But see infra text accompanying notes 469–78 (discussing how misconduct rates can be misleading since they depend on accurate and unbiased reporting by prison staff).

According to Gerald Gaes, the strongest studies include one from Tennessee, which shows essentially no difference, one from Washington, which shows somewhat positive results, 98Gaes et al., supra note 60, at 31. and three more recent studies of federal prisons by himself and coauthors, which found public prisons to be equivalent to private prisons on some measures, higher on others, and lower on yet others. 99Gaes, supra note 36, at 25–26 (citing Camp et al., Quality of Prison Operations, supra note 71; Scott D. Camp et al., The Influence of Prisons on Inmate Misconduct: A Multilevel Investigation, 20 Just. Q. 501 (2003); Camp et al., supra note 73).

2. Which Sector Leads to Less Recidivism?

Recidivism reduction is really just one dimension of prison quality, though it’s a particularly relevant one that deserves its own section.

If we found that inmates at private prisons were less likely to reoffend than comparable inmates at public prisons, this would be an important factor in any comparison of public and private prisons. Unfortunately, recidivism comparisons haven’t been very good either.

A study from the late 1990s by Lonn Lanza-Kaduce and coauthors reported that inmates released from private prisons were less likely to reoffend than a matched sample of inmates released from public prisons, and they had less serious offenses if they did reoffend. 100See Lonn Lanza-Kaduce et al., A Comparative Recidivism Analysis of Releasees from Private and Public Prisons, 45 Crime & Delinq. 28, 36–37 (1999) [hereinafter Lanza-Kaduce et al., A Comparative Recidivism Analysis]; see also Lonn Lanza-Kaduce et al., The Devil in the Details: The Case Against the Case Study of Private Prisons, Criminological Research, and Conflict of Interest, 46 Crime & Delinq. 92, 96–97 (2000). But this study has been critiqued on various grounds. 101The critiques are discussed in Gaes et al., supra note 7, at 24–26. Gaes et al. argue, see id. at 27, that several of the critiques continue to apply to a later paper with a longer follow-up period, L. Lanza-Kaduce & S. Maggard, The Long-Term Recidivism of Public and Private Prisoners (2001) (unpublished manuscript) (paper presented at the National Conference of the Bureau of Justice Statistics and Justice Research and Statistics Association, New Orleans, 2001). First, not all the recidivism measures are significant: while various reoffense-related rates were found to be significantly lower in the private sector, 102 See Lanza-Kaduce et al., A Comparative Recidivism Analysis, supra note 100. The difference in rearrest rates is significant at the 1% level and the difference in resentencing rates is significant at the 5% level, but the differences in reincarceration rates and for any indication of recidivism are only significant at the 10% level. Id. at 37. and while the seriousness of reoffending was found to be significantly lower in the private sector, 103Id. at 37–38. a time-to-failure analysis found that there was no significant difference in the “length of time that a releasee ‘survived’ without an arrest during the 12-month follow-up period.” 104Id. at 38–41. Second, the public inmates seem to not really have been well matched to the private inmates; they only seemed so when their descriptive variables were described at a high level of generality (e.g., custody level vs. “the underlying continuous score measuring custody level,” whether inmates had two or more incarcerations vs. the actual number of incarcerations, etc.). 105Gaes et al., supra note 7, at 25 (citing Fla. Dep’t of Corr., Bur. of Res. & Data Analysis, Preliminary Assessment of a Study Entitled “A Comparative Recidivism Analysis of Releasees from Private and Public Prisons in Florida” (1998)). Third, the authors seem to have made the questionable decision to assign an inmate to the sector he was released from, even if he had spent time in several sectors: thus, an inmate who spent years in public prison and was transferred to private prison shortly before his release was classified as a private prison releasee. 106Id. at 26. Fourth, a private releasee who reoffended could take longer to be entered in the system than a public releasee, 107Id. so the truly comparable number of private recidivists may well have been larger than reported.

A later study by David Farabee and Kevin Knight 108David Farabee & Kevin Knight, A Comparison of Public and Private Prisons in Florida: During- and Post-Prison Performance Indicators (2002). that “corrected for some of these deficiencies” 109Gaes et al., supra note 7, at 27. found no comparative difference in the reoffense or reincarceration rates of males or juveniles over a three-year post-release period, though women had lower recidivism in the private sector. 110Farabee & Knight, supra note 108, at ii–iii, 20–25. However, this study may still suffer from the problem of the attribution of inmates who spent some time in each sector, as well as possible selection bias to the extent that private prisons got a different type of inmate than public prisons did. 111Gaes et al., supra note 7, at 28.

Another study by William Bales and coauthors, 112William D. Bales et al., Recidivism of Public and Private State Prison Inmates in Florida, 4 Criminology & Pub. Pol’y 57 (2005). even more rigorous, 113See Gaes, supra note 36, at 9. likewise found no statistically significant difference between public-inmate and private-inmate recividism. 114Bales et al., supra note 112, at 69, 72, 74.

A more recent study, by Andrew Spivak and Susan Sharp, reported that private prisons were (statistically) significantly worse in six out of eight models tested. 115Andrew L. Spivak & Susan F. Sharp, Inmate Recidivism as a Measure of Private Prison Performance, 54 Crime & Delinq. 482, 500 tbl.5, 501 (2008). But the authors noted that some skepticism was in order before concluding that public prisons necessarily did better on recidivism. 116See id. at 503. Populations aren’t randomly assigned to public and private prisons: that private prisons engage in “cream-skimming” is a persistent complaint. 117See, e.g., Ariz. Dep’t of Corr., Revised FY 2009 Operating Per Capita Cost Report 2, 4 (2010) (discussing inmates “returned to state prisons due to an increase of their medical scores that exceeds contractual exclusions”); id. at 10 (explaining that “[m]edical, dental and mental health treatment is provided but to a healthier inmate population based upon contractual criteria resulting in lower overall medical costs”); id. at 12–16 (discussing medical, mental health, and other restrictions on inmates that can be sent to particular private prisons); Ariz. Office of the Auditor Gen., Report No. 10-08, Department of Corrections—Prison Population Growth 20 (2010) (“[P]rivate prisons do not accept inmates in need of more serious medical care . . . .”); Gaes et al., supra note 7, at 28; John J. DiIulio, Jr., The Duty to Govern: A Critical Perspective on the Private Management of Prisons and Jails, in Private Prisons and the Public Interest, supra note 25, at 155, 166–67 (stating that private firms “engage in correctional creaming when they bid,” meaning that they avoid bidding on facilities that they expect will “bring negative media attention, legislative inquiries, staff unrest, lawsuits, and judicial intervention”—that is, “the Atticas and Rikers Islands of the country”); Dolovich, supra note 5, at 505; Richard A. Oppel, Jr., Private Prisons Found to Offer Little in Savings, N.Y. Times, May 19, 2011, at A1 (discussing Arizona Department of Corrections study stating that private prisons “often house only relatively healthy inmates” and quoting State Representative Chad Campbell calling this practice “cherry-picking”). But see Gaes et al., supra note 60, at 34–35 (stressing that the federal Taft facility, the subject of the comparative study reported supra text accompanying notes 53–59, 83–94, will house inmates equivalent to those at the comparison facilities). Recall the case in Arizona, where the Department of Corrections made “an effort to refrain from assigning prisoners to [the private Marana Community Correctional Facility] if they [had] serious or chronic medical problems, serious psychiatric problems, or [were] deemed to be unlikely to benefit from the substance abuse program that [was] provided at the facility.” 118Thomas, supra note 23, at 73; see supra text accompanying note 64. But the phenomenon can also run the other way. One of the authors of the recidivism study, Andrew Spivak, writes that while he was “a case manager at a medium-security public prison in Oklahoma in 1998, he noted an inclination for case management staff (himself included) to use transfer requests to private prisons as a method for removing more troublesome inmates from case loads.” 119Spivak & Sharp, supra note 115, at 503–04.

Moreover, recidivism data is itself often flawed. 120See U.S. Gen. Accounting Office, supra note 78, at 29–31 (discussing Sechrest & Shichor, supra note 69) (“Sufficient data were not available to adequately complete the analysis comparing the inmates released from the community correctional facilities to inmates released from other correctional institutions in the state.”); Michael D. Maltz, Recidivism 58–60 (1984); Gaes et al., supra note 60, at 7. Recidivism has to be not only proved (which requires good databases) but also defined. 121See Brakel & Gaylord, supra note 10, at 154. Recidivism isn’t self-defining—it could include arrest; reconviction; incarceration; or parole violation, suspension, or revocation; and it could give different weights to different offenses depending on their seriousness. 122Maltz, supra note 120, at 62; see Ass’n of State Corr. Adm’rs, ASCA Performance-Based Measures System Counting Rules 15–24 (2013), available at http://www.asca.net/system/assets/attachments/5685/PBMS%20KeyIndicators%204_3_13.pdf. Which definition one uses makes a difference in one’s conclusions about correctional effectiveness, 123Maltz, supra note 120, at 63; see also James Dicker, 2020 Pub. Servs. Trust at the RSA, Case Study 2, Payment-by-Outcome in Offender Management 16 (2011) (“[N]either reconviction nor re-imprisonment rates capture all re-offending behaviour, as only about 45% of offenders who are reconvicted are incarcerated and it is possible to be recalled to prison for breaching license conditions without being reconvicted.”). as well as affecting the scope of innovation. 124See Dicker, supra note 123, at 18. The choice of how long to monitor obviously matters as well: “[m]ost severe offences occur in the second and third year after release.” 125Id. at 16–17. Recidivism measures might also vary because of variations in, say, enforcement of parole conditions, independent of the true recidivism of the underlying population. 126See Maltz, supra note 120, at 66–67.

The study of the comparative recidivism of the public and private sector could thus use a lot of improvement. 127See Gaes, supra note 36, at 9–11 (discussing these studies).

C. The Limits of Comparative Effectiveness

After having read the foregoing, one should be fairly dismayed at the state of comparative public-private prison research. 128Some studies are actually meta-analyses. See Gaes, supra note 36, at 3–6 (discussing meta-analyses and literature reviews). Two recent meta-analyses showed little difference between the public and private sectors. One, only analyzing costs, found no statistical difference between the public and private sectors. See Travis C. Pratt & Jeff Maahs, Are Private Prisons More Cost-Effective Than Public Prisons? A Meta-Analysis of Evaluation Research Studies, 45 Crime & Delinq. 358, 365, 366 tbl.2 (1999). Another, looking at both cost and quality, found that the private sector was both slightly cheaper and slightly worse; but with such small effects, the authors concluded that “prison privatization provides neither a clear advantage nor disadvantage.” See Brad W. Lundahl et al., Prison Privatization: A Meta-Analysis of Cost and Quality of Confinement Indicators, 19 Res. on Soc. Work Prac. 383, 392 (2009). A third—more a literature review than a meta-analysis—reported that the comparison was “inconclusive,” 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, 301 (2003); and in any event there was no formal attempt to control for differences between the public and private prisons compared. See id. at 306.Given that many of the underlying studies are flawed in various ways, it’s not clear how you do better by aggregating them. When studies done in vastly different ways and subject to different sources of bias are aggregated in a meta-analysis, the results are “garbage in, garbage out.” In fact, it gets worse. An overarching problem is that most studies don’t simultaneously compare both cost and quality. It is hard to draw strong conclusions from such studies, even if they are state-of-the-art at what they are examining. 129See U.S. Gen. Accounting Office, supra note 78, at 13; see also Simon Hakim & Erwin A. Blackstone, Cost Analysis of Public and Contractor-Operated Prisons 4, 11 (Apr. 29, 2013) (unpublished working paper) (finding long-run cost savings between 12% and 59% but devoting scarcely any attention to quality).

If we find that a private prison costs less, how do we know that it did not achieve that result by cutting quality? (This is the standard critique of private prisons.) 130See, e.g., Dolovich, supra note 5, at 474–80 (discussing the economic incentives inherent to private prison management for saving money by reducing overall quality of service). If we find that a private prison costs more, how do we know that it did not cost more because of the fancy and expensive educational or rehabilitative programs it implemented? 131See McDonald et al., supra note 22, at 34–35; Developments in the Law—The Law of Prisons, supra note 9, at 1875–78. (According to Douglas McDonald, this was exactly the problem with the cost comparison of the Silverdale Detention Center in Hamilton County, Tennessee.) 132See McDonald, supra note 25, at 91.

Our goal should be to determine the production function for public and private prisons; this is the only way we will find out whether privatization moves us to a higher production possibilities frontier or merely shifts us to a different cost-quality combination on the existing frontier. 133Cf. Caroline M. Hoxby, School Choice and School Competition: Evidence from the United States, Swedish Econ. Pol’y Rev., no. 2, 2003, at 9, 42 (“If school choice is to be public policy, and not merely an experiment, then the question we need to answer is whether students’ achievement would rise if they attended voucher or charter schools that had resources like those available to them in regular public schools. In other words, we should ask the achievement question, holding resources constant (as well as holding students’ ability, motivation, and other characteristics constant).”). Realizing this allows us to throw out a lot of studies from the outset.

At least people are taking more seriously the need to develop valid comparisons. Governments need to mandate, by regulation or by contract, that the information necessary to do valid comparisons become available, even if collecting these extra data would add to private facilities’ cost. 134See U.S. Gov’t Accountability Office, supra note 26, at 5, 13–14, 17, 19–20, 30. Until we get a better handle on what works, public and private prisons should be required to live up to the same standards to facilitate comparisons. Private prisons should get the same types of inmates as public prisons—neither better nor worse 135See supra text accompanying notes 117–19. —and they should be restricted in whom they can transfer out. 136See Office of Program Policy Analysis & Gov’t Accountability, State of Fla., Report No. 95-12, Review of Correctional Privatization 4 (1995) (recommending restrictions on transfers out of private prisons).

Having spent so long bemoaning the paucity of good comparative effectiveness studies, I should note that there’s more to life than comparative effectiveness. Even ignoring any differences between the public and private sectors, privatization can have systemic effects, altering how the public sector works. 137Cf. Hoxby, supra note 133, at 19 (noting that “[school] choice can affect productivity through a variety of long-term, general equilibrium mechanisms that are not immediately available to an administrator,” like bidding up the wages of successful teachers and altering the mix of people who choose teaching as a career, making parents into more informed consumers by encouraging the spread of information about schools, altering what curricula are adopted, and the like).

For one thing, privatization can, for better or worse, change the public sector as well. Suppose private prisons are better than public prisons but competitive pressures lead public prisons to improve as well. 138See Charles W. Thomas, Correctional Privatization in America: An Assessment of Its Historical Origins, Present Status, and Future Prospects, in Changing the Guard, supra note 10, at 57, 59; see also infra Part II.A (discussing how privatization can improve accountability of the public sector). A comparative study may not be able to find any difference between the two sectors, and yet one can still say that privatization was a success. 139Cf. Hoxby, supra note 133, at 43 (suggesting that concentrating on the effect on student achievement of private schooling vs. public schooling is wrongheaded in the school choice debate because school choice can be a success if, through competition, it leads to improvements in the public sector, so that there never emerges any difference between public and private school outcomes). (Indeed, one study does suggest that for prisons, privatization might drive public agencies to be more efficient, 140See James F. Blumstein et al., Do Government Agencies Respond to Market Pressures? Evidence from Private Prisons, 15 Va. J. Soc. Pol’y & L. 446, 454 (2008); see also James F. Blumstein & Mark A. Cohen, The Interrelationship Between Public and Private Prisons: Does the Existence of Prisoners Under Private Management Affect the Rate of Growth in Expenditures on Prisoners Under Public Management? 1 (2003) (concluding that “states that have some of their prisoners in privately owned or operated prisons experience lower growth in the cost of housing their public prisoners”). though the statistical significance of this effect seems highly sensitive to the precise specification, 141See Blumstein et al., supra note 140, at 465 (finding an insignificant effect with two different specifications but a significant effect with a third). and selection bias is a confounding issue. 142The authors estimate the effect using a two-stage regression where the first stage represents the probability of privatizing, but this method doesn’t always take care of selection effects. See Alexander Volokh, Do Faith-Based Prisons Work?, 63 Ala. L. Rev. 43, 67–73 (2011). Gaes also critiques the study. See Gaes, supra note 36, at 12–14. I have discussed or critiqued selection bias in many places. See Alexander Volokh, Choosing Interpretive Methods: A Positive Theory of Judges and Everyone Else, 83 N.Y.U. L. Rev. 769, 803–19 (2008); Volokh, supra note 9, at 1245–47; Alexander Volokh, Privatization, Free Riding, and Industry-Expanding Lobbying, 30 Int’l Rev. L. & Econ. 62, 68 (2010) [hereinafter Volokh, Privatization, Free Riding]; Alexander Volokh, The Effect of Privatization on Public and Private Prison Lobbies, in 3 Prison Privatization: The Many Facets of a Controversial Industry 7, 24–26 (Byron Eugene Price & John Charles Morris eds., 2012) [hereinafter Volokh, The Effect of Privatization]. ) Similarly, if private prisons really do cost less, and therefore allow for greater increases in capacity, thus relieving overcrowding across the board, that effect will not show up in a comparative study. 143Developments in the Law—The Law of Prisons, supra note 9, at 1875. Likewise if best practices migrate from one sector to another through a process of cross-fertilization 144I discuss cross-fertilization at greater length below. See infra text accompanying note 194. : Richard Harding calls this “the paradox of successful cross-fertilization—that regimes progressively become more similar than dissimilar to each other.” 145Richard Harding, Private Prisons, in 28 Crime and Justice: A Review of Research 265, 334 (2001). But see Tony Ward, Book Review, 3 Theoretical Criminology 125, 126 (1999) (reviewing Harding, supra note 72) (conceding that Harding’s cross-fertilization argument is valid but noting that “[t]here seems to be a ‘heads I win, tails you lose’ quality to [Harding’s cross-fertilization] argument (if public prisons turn out to be better than private ones, that just proves that competition is good for them!)”).

Alternatively, what if privatization leads to a race to the bottom? If private prison cost-cutting is harmful, and if public prisons have to cut costs to stay competitive, we may have lower quality, including higher recidivism, across the board. 146See Gaes et al., supra note 7, at 108; Harding, supra note 72, at 138 (noting that reductions in public prisons’ staffing levels in response to competition could be alternatively characterized as “cross-fertilization” or “industrial blackmail” (internal quotation marks omitted)); Gerald G. Gaes, Reaction Essay, Prison Privatization in Florida: Promise, Premise, and Performance, 4 Criminology & Pub. Pol’y 83, 87 (2005).

In either of these two cases, good empirical evaluations are necessary, though detecting such dynamic, systemwide effects will require before-and-after studies, not comparative snapshots.

Finally, to step back a bit from the privatization debate, regardless of what comparative effectiveness analysis shows, both sectors may fall short of the ideal, so this exercise should not blind us to the continuing need to reform the whole system. 147See Dolovich, supra note 5, at 442. I will add that, even if the public and private sectors are equivalent, one can argue against privatization on the grounds that—assuming it costs less—it enables greater expansion of the prison system and therefore may increase incarceration and hinder the search for alternative penal policies. 148See Volokh, supra note 6, at 142–43 & n.30 (collecting sources making this argument).

II. Why Use Performance Measures?

A. The Puzzle of Prisons?

The moral so far is that the whole empirical literature on public and private prisons is inconclusive. 149See also Alexander Volokh, The Modest Effect of Minneci v. Pollard on Inmate Litigants, 46 Akron L. Rev. 287, 324 (2013). As I noted in the Introduction, this should be somewhat of a puzzle for activists on both sides who claim that privatization should turn prisons into either humanitarian disaster zones or models of quality and efficiency. 150See supra text accompanying notes 10–11.

Of course, that the empirical literature is inconclusive doesn’t mean the sectors are equivalent; it means that current methods haven’t been good enough to detect the difference. A methodologically deficient literature could hide evidence of either good or bad quality. But if the differences are great enough, you’d think they might show through even with bad methods. 151See supra note 12.

The tentative conclusion I draw from the literature, though, is that there may be modest, but not huge, quality differences between the sectors; the public sector is better on some dimensions and worse on others, and there’s no good evidence that either sector does better at reducing recidivism. And while the private sector is probably cheaper, it remains to be seen whether the cost savings is on the order of 15% (respectable) or on the order of 3% (somewhat negligible). 152See supra text accompanying notes 53–57.

But this puzzle largely disappears when we consider the institutional environment of private prisons. In many areas, the private sector has been good at delivering better results at a lower cost. This is because private producers are accountable to customers who care about the quality of the end product, and because they have the flexibility to change how they do things in response to problems they may encounter. Neither of these conditions is true for private prisons—not even slightly, not even as a first approximation.

I have noted above that there is limited evidence of private firm innovation. 153See, e.g., Camp & Gaes, supra note 62, at 287 (“In most of the literature in favor of privatization, . . . little or no detail is offered as to how . . . market pressures actually translate into real differences between public and private prisons . . . .”); Scott D. Camp, Editorial Introduction to Colloquy, Private Prisons & Recidivism, 4 Criminology & Pub. Pol’y 55, 55 (2005) (stating that “little specific information is provided about why” private prison releasees should have lower recidivism); Dolovich, supra note 5, at 476 (noting that “[t]here is . . . little evidence of cost-saving innovation in private-sector prisons”). But this is because private prisons are highly constrained in how they operate. Private prison contracts essentially “‘governmentalize’ the private sector,” 154Thomas, supra note 138, at 64; see also id. at 82, 100–02, 116 n.15. reproducing public prison regulations in the private contract. Privatization can come to resemble an exercise in who can better pretend to be a public prison. 155See McDonald et al., supra note 22, at 49; Durham, supra note 20, at 67; Gaes et al., supra note 60, at 12 (“Generally speaking, the contract [discussed in Thomas, supra note 23] stipulates that [the private provider] run the . . . facility in a manner similar to that in which the state would have operated the prison.”); id. at 17 (“Basically, the State of Arizona has taken the position that a private contractor should be given the opportunity to demonstrate it can [outperform] the state in running an Arizona prison according to Arizona Department of Corrections policy.”); Harding, supra note 145, at 303; Douglas McDonald & Carl Patten, Jr., Governments’ Management of Private Prisons 18 (Sept. 15, 2003) (unpublished manuscript), https://www.ncjrs.gov/pdffiles1/nij/grants/203968.pdf.

For instance, back in 1985, Robert Levinson complained of a contract with the Eckerd Foundation for the management of the Okeechobee School for Boys in which “[v]irtually every” contract item

concerned input activities and pertained to administrative/operational functions. Thus, Eckerd could have been in total compliance with all contractual provisions even if every released client committed a new offense on the first day in the community. Moreover, at no point in the contract were the criteria for noncompliance stated nor its consequences specified. 156Levinson, supra note 24, at 87; see also id. at 88 (noting that “close, coordinated monitoring of the contract by the state” may be precluded by “vague or nonexistent contract goals”).

More recently, in Arizona, an auditor general report stated,

The Department requires that private prisons mirror state-operated facilities, and performs extensive oversight activities to ensure that its contractors meet its requirements. In order to maintain uniform standards for state and private prisons, the Department requires contractors to follow Department Orders, Director’s Instructions, Technical Manuals, Institution Orders, and Post Orders. These requirements extend to specific details, such as following the same daily menus as state-operated facilities. Contractors may request waivers from the Department for policies that are not applicable to private prisons, such as state fiscal management practices, employee evaluations, and employee benefits. 157Debra K. Davenport, Ariz. Office of the Auditor Gen., Report No. 01-13, Arizona Department of Corrections: Private Prisons 9 (2001); see also Thomas, supra note 138, at 101.

The same daily menus! In Tennessee, “it even appears that private sector innovation was deliberately thwarted by making the private sector provider . . . abide by [state Department of Corrections] policy” in running the facility. 158Gaes et al., supra note 60, at 10.

Subjecting private contractors to public regulations is actually quite common; 159Camp & Gaes, supra note 23, at vii (“[P]rivate contractors were typically obligated to use the training standards and policies of the public agencies.”); see also id. at 28. But see id. at ix (“[T]he private sector, even when there is no contractual obligation, has adopted the standards and policies of their public sector counterparts.”); see also id. at 32. one exception to this trend is Florida, where public and private prisons are controlled by different agencies, 160Id. at x, 32–33; see also Harding, supra note 72, at 161. and the agency that regulates private prisons tries to balance “setting policy and encouraging innovation.” 161Camp & Gaes, supra note 23, at x; see also Harding, supra note 145, at 303–04 (noting a similar situation in Western Australia). More generally, input specification in private-prison contracts is routine, though of course the level of inputs specified can (and should) be “output-driven” in the sense that it’s “related to output objectives.” 162Harding, supra note 72, at 67–68 (internal quotation marks omitted); see also Peter H. Kyle, Note, Contracting for Performance: Restructuring the Private Prison Market, 54 Wm. & Mary L. Rev. 2087, 2111 (2013) (“[S]ome states have started to require the provision of vocational services . . . .”). Harding does not distinguish between outputs and outcomes, see supra text accompanying note 17, so when he refers to outputs here, he means something like outcomes. Harding also suggests “intermediate outputs” as a synonym for “output-driven inputs,” Harding, supra note72, at 67–68 (internal quotation marks omitted); perhaps this concept is close to what I refer to as simply “outputs.” See Radin, supra note 17, at 15 (defining “output” and “intermediate outcome” differently). For instance, one can find liquidated damages provisions for certain input-based breaches like not complying with the state’s policies or not filling certain required positions. 163See Leonard Gilroy, Innovators in Action 2012: Creating a Culture of Competition to Improve Corrections, Reason Found. (May 31, 2012), http://reason.org/news/show/1012923.html.

If inputs and procedures are highly regulated, it’s not surprising that the evidence for private-sector improvements isn’t overwhelming. The market is a discovery process; one shouldn’t expect different methods to emerge unless innovation is permitted.

And not only permitted: one shouldn’t expect different methods to emerge unless the incentives favor it. If the premise of privatization is that incentives work, particularly given the greater flexibility of private industry, micromanaging inputs and failing to incorporate the full range of desirable outcomes into the contract price means giving up on much of the possible benefit of privatization.

But the efforts to measure performance in various areas of government from the Job Training Partnership Act of 1982 164Pub. L. No. 97-300, § 106(b)(1), 96 Stat. 1322, 1333, repealed by Workforce Investment Act of 1998, Pub. L. No. 105-220, § 199(b)(2), 112 Stat. 936, 1059 (providing that permissible performance measures for job-training organizations include “(A) placement in unsubsidized employment, (B) retention in unsubsidized employment, (C) the increase in earnings, including hourly wages, and (D) reduction in the number of individuals and families receiving cash welfare payments and the amounts of such payments”). and the Government Performance and Results Act of 1993 165Pub. L. No. 103-62, 107 Stat. 285 (codified as amended in scattered sections of 5 and 31 U.S.C.); see Laurence E. Lynn, Jr., Requiring Bureaucracies to Perform: What Have We Learned from the U.S. Government Performance and Results Act (GPRA)?, Politiques et Mgmt. Pub., June 1999, at 1, 3; Matthew S. Schoen, Note, Good Enough for Government Work?: The Government Performance Results Act of 1993 and Its Impact on Federal Agencies, 32 Seton Hall Legis. J. 455, 467 (2008). —and the limited efforts to make funding contingent on those performance measures 166See infra Part III.C.1. —have largely passed prisons by.

Outcome measures aren’t totally absent. Contracts do include a limited range of outcome measures—for instance, limited penalties for escapes. 167See, e.g., Tennessee CCA 2007 contract, supra note 67, § A.4.x.2 (“In the event of an escape resulting in whole or part from Contractor’s failure to perform pursuant to the provisions of this Contract, the State may seek damages in a court of competent jurisdiction.”). Note that there’s no provision for paying for escapes not stemming from nonperformance—the contractor need only “exercise its best efforts to prevent escapes.” See id. § A.4.x.1. But by and large, outcome-based compensation is rare. 168See Kenneth L. Avio, The Economics of Prisons, 6 Eur. J.L. & Econ. 143, 150 (1998); Pozen, supra note 79, at 282–83; Thomas, supra note 138, at 107 (“[I]f there are contracts that include product-oriented requirements that go beyond mere evidence of participation, then they are contracts I have never read.”). And to the extent there are outcome-based rewards or penalties, Charles Thomas argues, “the amounts involved commonly have little or no correlation with the true magnitude of what independent contractors accomplished or failed to accomplish,” and “the dollar value of the reward or sanction is often too trivial to encourage superior performance or to deter defective performance.” 169Thomas, supra note 138, at 109. (Of course this isn’t always true: the state of Ohio recently fined CCA nearly $500,000 for contract violations found during audits, and many of these violations were performance-relevant.) 170See Unique Private Prison Deal Leads to Backlash, Correctional News (Mar. 6, 2013), http://www.correctionalnews.com/articles/2013/03/6/unique-private-prison-deal-leads-backlash. Even developing outcome measures hasn’t been a high priority. 171See Durham, supra note 20, at 67.

In 1998—not that long ago—Douglas McDonald and his coauthors identified two exceptional cases of performance-based compensation: the “Bureau of Prisons’ contract with Wackenhut for the operation of the Taft Correctional Institution in California,” which allowed for “an award-fee incentive worth up to 5 percent of paid invoices,” and a District of Columbia contract with CCA for the Correctional Treatment Facility, “which permit[ted] financial rewards for meeting targets based on performance indicators.” 172See McDonald et al., supra note 22, at 52. “Wackenhut Corrections Corp. changed its name to The GEO Group in November 2003 under the terms of a share purchase agreement with another company.” Volokh, supra note 9, at 1229 n.131.

Florida recently would have taken a good step in this direction, if the bill in question 173S.B. 2038, 2012 Leg., Reg. Sess. (Fla. 2012), available at http://flsenate.gov/Session/Bill/2012/2038/BillText/e1/PDF. hadn’t been defeated. The bill would have required that private prison contracts make provision for measuring a number of dimensions of performance (though note that some of these are output measures): number of batteries, number of major disciplinary reports, percentage of negative random drug tests, number of escapes, percentage of inmates in “a facility that provides at least one of the inmate’s primary program needs,” and so on. 174Id. sec. 1, § 944.7115(8)(f)(1)(a)–(r). The number of escapes also showed up in a more specific way: the contractor would have been required to reimburse the state for the costs of escapes. 175Id. sec. 1, § 944.7115(11). The Florida bill also listed required various performance measures for work release centers. 176These were “(a) The percent of employment of supervised individuals; (b) The illegal substance use by supervised individuals; (c) The victim restitution paid by supervised individuals; (d) Compliance by supervised individuals with no-contact orders; (e) The number of serious incidents occurring at the facility; and (f) The number of absconders.” Id. sec. 1, § 944.7115(8)(f)(2)(a)–(f). (I discuss various other performance measures below.) 177See infra Part II.D.

The following sections develop these themes and discuss two distinct benefits of using performance measures. The first set of advantages of using performance measures, discussed in section B, is a pure accountability advantage: we, as citizens and policymakers, would know how well our prisons are doing; we’d be better informed in deciding which sector to choose, either systemwide or on discrete projects; and we could think more clearly about what prisons should be doing. The second type of advantage, discussed in section C, goes more to harnessing incentives to improve the system over time: incorporating performance measures into contracts, and tying providers’ compensation to how well they do, would give providers a reason to care about quality and simultaneously let us grant them greater flexibility. Section D discusses the normative issues involved in choosing the actual measures.

B. Accountability, Neutrality, and Goal Setting

1. To Know What Works

We all want to improve prisons. But forget about that for a moment. Even before any of these improvements were possible, performance measures would have the obvious effect of allowing us to measure performance. This would be a great step forward in researchers’ ability to conduct quality studies. We would have a better sense of which sector provides better quality; combine that with better cost studies that take into account the pitfalls described above, 178See supra Part I.A. and we’d be better able to decide whether to be one of the nineteen states that (as of 2011) don’t have private prisons. 179See supra note 18 and accompanying text. If we do decide not to use private prisons, performance measures would help us determine which public prisons performed badly and where to look for improvement. 180See Aloysius Bavon, Innovations in Performance Measurement Systems: A Comparative Perspective, 18 Int’l J. Pub. Admin. 491, 493, 502 (1995) (discussing how performance measurement arose as a result of the perceived inefficiency of the public sector); Marc Holzer & Arie Halachmi, Measurement as a Means of Accountability, 19 Int’l J. Pub. Admin. 1921, 1922 (1996) (arguing that measurement improves accountability of the public sector).

2. To Implement Competitive Neutrality

Suppose we decide not to use private prisons. Should we then contract out the entire prison system? Probably not: someone has to be able to run a facility if the current contractor has fallen down on the job or gone bankrupt, 181See Harding, supra note 72, at 158 (“The state must in the last resort be able to reclaim private prisons.”); Michael J. Gilbert, How Much Is Too Much Privatization in Criminal Justice?, in Privatization in Criminal Justice, supra note 62, at 41, 76–77. and given how concentrated the private prison industry currently is, 182Volokh, supra note 9, at 1237–38. it may not always be realistic to count on being able to easily bring in a competitor when this happens.

How much of the system, then, should we privatize? The standard way to proceed is to choose particular prisons to privatize and put them up to bid to private firms, or to contract with private firms to use their own prisons. A more beneficial approach, though, would be to have a regime of “competitive neutrality,” where the public and private sector compete on the same projects. 183See William D. Eggers, Reason Pub. Pol’y Inst., How-to Guide No. 18, Competitive Neutrality: Ensuring a Level Playing Field in Managed Competitions 6 (1998); Gaes, supra note 36, at 24. The best system may be one of mixed public and private management, where private programs “complement existing public programs rather than replace them.” 184Patrick Anderson et al., Private Corrections: Feast or Fiasco?, Prison J., Oct. 1985, at 32, 38. (Health care reformers’ advocacy of the “public option” in health insurance was premised on a similar idea: that public participation can make competition more fair by disciplining private providers more than they would discipline each other.) 185See Jacob S. Hacker, The Case for Public Plan Choice in National Health Reform: Key to Cost Control and Quality Coverage 1–2 (2008), http://ourfuture.org/report/case-public-plan-choice-national-health-reform; see also William A. Niskanen, Jr., Bureaucracy and Representative Government 217 (1971) (“In the 1930’s, the primary case for the creation of public power authorities was to provide a ‘yardstick’ with which to evaluate private electric utility monopolies.”).

For instance, Gary Mohr, director of the Ohio Department of Rehabilitation and Correction, has talked about creating a “culture of competition” in corrections. 186Gilroy, supra note 163. Ohio has pursued a combination of outsourcing and insourcing: some public prisons have been sold or their management has been contracted out to the private sector, while one private prison has been taken in-house. 187Id. The result, according to Mohr, is that one can “ratchet[] up the best practices that can be created from both the public sector and multiple private vendors.” 188Id.

But for this sort of system to work, we have to be able to fairly compare private-sector and public-sector bids before the fact. The cross-fertilization that’s supposed to result from competitive neutrality depends on flexibility, otherwise both sectors will try to do the same thing. But, without performance measures, flexibility undermines the ability to do the comparative analysis of bids that’s necessary to successfully implement cross-fertilization; the most straightforward way of making efficiency comparisons without performance measures is to mandate that the private sector replicate every public-sector procedure, down to the tiniest detail. And indeed, this is what Mohr did when contracting out the management of the North Central Correctional Complex facility to the private sector or when selling the Lake Erie Correctional Institution. 189See id. (“[I]n the [request for proposals], . . . . we replicated the post assignments and the staffing pattern and the policies and the food requirements. We basically said, ‘you must identify a minimum of a 5 percent savings’ from exactly the cost of what it has cost us to operate North Central.”); see also id. (noting that “it was the same process” with Lake Erie Correctional Institution).

But with performance measures—and with an understanding of how proposed programs and methods translate into performance—he would have been able to take different proposals, translate them into expected performance, and thus have a basis for comparison, even if the proposals were radically dissimilar. 190Ohio actually has performance metrics, which are a combination of output and outcome measures, covering “everything from violence indicators, to use of force indicators, to program completion indicators (GED, etc.), to recidivism data.” Id. But they apparently weren’t used in the way described above. (The beliefs about expected performance would then have to be verified by evaluating the winning contractor’s performance after the fact.)

In particular, recall the problems involved in figuring out the public sector’s true costs 191See supra Part I.A.1. : the same problems can make for unfair competitions if public providers’ bids don’t include the costs they bear that are paid for by other departments, their different tax treatment, and the like. 192See Eggers, supra note 183, at 1, 8–11. So it’s not surprising that such a regime is rare in the United States. 193See Thomas, supra note 138, at 81, 86 (“I am aware of no example in the United States that reveals fair competition between public and private providers of correctional services. Until both of those policy failures are corrected, achieving many of the potential benefits of privatization will be impossible.”); cf. Harding, supra note 145, at 334 (explaining that such competition is also rare in Australia and the U.K.).

One of the advantages of competitive neutrality is that—as in Ohio—prisons can be both outsourced and insourced at different times, depending on who wins the contract, so particular prisons can “churn” between the public and private sectors. The result, according to Richard Harding, would be a “process of positive cross-fertilization,” 194Harding, supra note 72, at 115; accord id. at 162; Developments in the Law—The Law of Prisons, supra note 9, at 1890–91; Gilroy, supra note 163. where best practices migrate from one sector to another. 195Joanna Saul, Executive Director of Ohio’s Correction Institution Inspection Committee, takes a different view, stating that churningwould actually be horrific in practical application. The transition of prisons from public to private has been very difficult, with negative effects up to a year or more later. Private personnel have been very confused (or just ignorant) about the implementation of Ohio policies, which resulted in the really bad audit that they had at Lake Erie in Nov[ember]/Dec[ember] 2012. Further, the displacement of the public employees to other prisons caused a negative ripple effect across the system that will continue far into the future [because] people lost their seniority [and] the positions they had worked for, they came from different prison cultures, etc.Comments on a draft of this Article from Joanna Saul, Exec. Dir., Ohio Corr. Inst. Inspection Comm., to Alexander Volokh, Assoc. Professor, Emory Law School (Aug. 31, 2013). Perhaps Harding’s pro-churning and Saul’s anti-churning views can be reconciled: too much churning may be more trouble than it’s worth, since one will always incur transition costs when transferring a prison to new management. But the knowledge that churning might happen—that is, that a company could lose the contract to operate a prison—can exert beneficial competitive pressure. “[T]he opening up of the private sector,” Harding writes, “may heighten awareness of how sloppy public accountability has often been in the past, leading to the creation of innovative mechanisms applicable to both the private and the public sectors.” 196Harding, supra note 72, at 22–23. In fact, Harding argues, systemic improvement has been one of the best consequences of privatization, 197See Harding, supra note 145, at 272–73, 331–36. so narrowly focusing on which sector is better in a static sense is almost beside the point. 198There remains the fear that, instead of systemwide improvement through cross-fertilization, we’ll get a race to the bottom, as Gaes worries. See supra text accompanying note 146. But good performance measures help avoid that problem.

3. To Express What We Want

Measuring performance would do more than just let us know which sector is better and promote cross-fertilization by facilitating a competitive neutrality regime. On an even higher level, it would encourage governments to better conceptualize what makes for a good prison—an exercise that’s long overdue. 199See Dicker, supra note 123, at 6 (“[P]ayment-by-outcome . . . compels commissioners to state explicitly the goals of policy.”).

Jon Vagg, for instance, argues that, in the U.K., private prisons “were a key factor in persuading the administration that standards were necessary, if only for the purpose of monitoring contractual compliance.” 200Vagg, supra note 80, at 307. And that example isn’t just a fluke. Prisons have been operating for centuries, 201See, e.g., G. Geltner, The Medieval Prison: A Social History (2008); Ralph B. Pugh, Imprisonment in Medieval England (1968); Edward M. Peters, Prison Before the Prison: The Ancient and Medieval Worlds, in The Oxford History of the Prison: The Practice of Punishment in Western Society 3 (Norval Morris & David J. Rothman eds., 1995). and yet it was the experience of privatization that spurred the development of performance measures, as private-prison critics made arguments that privatization harmed quality and private-prison advocates made arguments to the contrary. 202See Gaes et al., supra note 7, at xi, 153, 180; Harding, supra note 72, at 22; cf. Niskanen, supra note 185, at 217 (“[T]he case for the private supply of some public services is . . . to provide a yardstick to evaluate the performance of budget-maximizing monopoly bureaus.”). Now that performance measures exist, one can use them to evaluate both the private and the public sectors, to the benefit of both.

C. For Performance-Based Contracting

With performance measures, we can go further than just knowing how good public and private prisons are, implementing competitive neutrality, and formulating the proper goals of the prison system—important as all that is. We can also incorporate the performance measures into contracts and make compensation contingent on performance, finally giving prison providers strong incentives to deliver high quality.

1. Limited Current Efforts

Performance-based compensation is being implemented in the United States to a very limited extent. As noted above, 203See supra text accompanying note 172. 5% of the contract price at the Bureau of Prisons’ Taft facility was performance-based. Taft was a demonstration project, which should give one a sense of how new this enterprise is. 204Also, in Kansas, Senate Bill 14 rewards community corrections agencies for reductions in recidivism beyond a set target. See S.B. 14, 2007 Leg., Reg. Sess. (Kan. 2007); Conservative Party, Policy Green Paper No. 4, Prisons with a Purpose: Our Sentencing and Rehabilitation Revolution to Break the Cycle of Crime 74 (2008); Cullen et al., supra note 13, at 90 (listing Washington’s performance-based evaluation of treatment programs; Arizona’s Senate Bill 1476, which provides for performance-based compensation of probation departments; and other programs in California, Colorado, Illinois, and South Carolina).

The U.K. is now on the forefront of performance-based compensation, which it calls “[p]ayment-by-outcome” or “payment-by-results.” 205Dicker, supra note 123, at 6. The idea was floated in a 2008 Conservative Party Green Paper 206See Conservative Party, supra note 204, at 49, 72–75. and, once the Conservative Party came into power, it was developed in a 2010 Green Paper from the Ministry of Justice. 207See Ministry of Justice, Breaking the Cycle: Effective Punishment, Rehabilitation and Sentencing of Offenders, 2010, Cm. 7972, at 38–39 (U.K.). Payment-by-results is being introduced in three prisons: two private prisons, Peterborough 208See Dicker, supra note 123, at 13. and Doncaster, 209See Wesley Johnson, Payment-by-Results Project Bid to Cut Reoffending, Independent (Oct. 11, 2011), http://www.independent.co.uk/news/uk/crime/paymentbyresults-project-bid-to-cut-reoffending-2368793.html; John Biggin, Innovative Rehabilitation—Payment by Results at Doncaster Prison, GOV.UK (Oct. 13, 2011), https://www.gov.uk/government/news/innovative-rehabilitation-payment-by-results-at-doncaster-prison. and a public prison, Leeds, 210Joe Inwood, State-Run Leeds Prison to Be Paid on Results, BBC News (Oct. 27, 2011), http://www.bbc.co.uk/news/uk-england-leeds-15479570. Leeds Prison is also called Armley. Id. though the plan is to extend the model to all prisons by 2015. 211Id. The measure is the twelve-month reconviction rate, 212See Dicker, supra note 123, at 13, 30 n.29. compared to a matched comparison group. At Peterborough, performance-based “[p]ayments start when the reconviction rate of the intervention group is 7.5% less than that of the matched comparison group, with increasing returns up to a maximum rate of 13%.” 213Id. at 13. At Doncaster, payments start when the reduction is 5%. Biggin, supra note 209. “The Peterborough pilot is the first in the world where private investors have assumed financial risk for reducing re-offending.” 214Dicker, supra note 123, at 13. In addition to having access to a range of prison programs to prevent recidivism, offenders at Doncaster are assigned case managers to support them during their sentence and after release, offering advice and help on employment, housing, and benefits issues. 215There’s also a twenty-four-hour help line. Johnson, supra note 209; Biggin, supra note 209. (Earlier experience with payment-by-results was “primarily limited to the welfare to work market[,] where success [was] varied and limited.”) 216Chris Nicholson, Rehabilitation Works: Ensuring Payment by Results Cuts Reoffending 5 (2011); see also id. at 21–24 (discussing the experience with payment-by-results in the welfare to work context, characterizing the “Pathways to Work” program as unsuccessful and the “Employment Zones” program as reasonably successful).

A parallel program focused on finding jobs for offenders, called Job Deal, compensates providers based on employment rates. 217Dicker, supra note 123, at 13. Compensation is 70% fixed and 30% conditional—a third of the conditional payment is for an output measure, “successfully enrolling offenders” in the program; another third is for “a combination of outputs and processes” such as “helping clients open bank accounts”; and another third is “for achieving ‘hard outcomes.’” 218Id. at 14. Note, though, that even these “hard outcomes” are softer than they might seem, because they include finding a job but also include “enrolling in further learning.” 219Id. Some additional payment-by-results programs have also been proposed by the government or by the Social Market Foundation, focusing either on reoffending rates or on other outcomes or outputs like “drug use cessation or employment.” 220Id.

2. The Range of Possible Contracts

a. General Considerations

These examples suggest how performance-based contracts could be structured. The contract could provide that the contract price is not just the usual flat per-diem per prisoner, 221Dolovich, supra note 5, at 474; see also Tennessee CCA 2007 contract, supra note 67, § C.3 (laying out schedule of per diems). but an incentive payment that—as a simple example—could vary (positively) with how many inmates find jobs or (negatively) with how many inmates are rearrested within two years. 222See Kenneth L. Avio, On Private Prisons: An Economic Analysis of the Model Contract and Model Statute for Private Incarceration, 17 New Eng. J. on Crim. & Civ. Confinement 265, 294–95 (1991); Daniel L. Low, Nonprofit Private Prisons: The Next Generation of Prison Management, 29 New Eng. J. on Crim. & Civ. Confinement 1, 46 (2003); Kyle, supra note 162, at 2111–12; Gaes, supra note 36, at 23 (citing Gaes et al., supra note 7).

Outcome measurements may not always be available for all dimensions of quality, so some measurement of inputs may continue to be necessary. 223Durham suggests that “process-oriented monitoring methods” continue to be used: “[A] system of frequent accounting of staffing levels can detect shortfalls in staffing that may lead to a diminution in service provision. . . . If the change in staffing levels is detected relatively quickly, efforts can be made to either restore institutional staff to initial levels or to alter the evaluation design.” Durham, supra note 20, at 66; see also Dicker, supra note 123, at 16 (suggesting intermediate outcomes such as drug misuse, stability of relationships, or becoming debt-free); Sidney A. Shapiro & Rena Steinzor, Capture, Accountability, and Regulatory Metrics, 86 Tex. L. Rev. 1741, 1775, 1779 (2008); cf. U.S. Gen. Accounting Office, GAO/T-GGD-97-151, Performance-Based Organizations: Lessons from the British Next Steps Initiative 7 (1997) (discussing why measuring inputs may be necessary in the context of British Next Steps agencies); Shapiro & Steinzor, supra, at 1779 (discussing why measuring inputs may be necessary in the context of the EPA and GPRA). But as far as possible, the ideal should be to make compensation contingent not on inputs like guard training, or even on outputs like the number of GEDs granted or the number of rehabilitative programs offered or ACA accreditation, 224See McDonald et al., supra note 22, at 49 (“Correctional administrators . . . reported that 57 of the contracts in force at the end of 1997 required that facilities achieve ACA accreditation within a specified time.”). but primarily on actual outcomes like the extent of unconstitutional conditions or how well prisoners are actually rehabilitated or how many prisoners get jobs. 225See Kyle, supra note 162, at 2112–13.

The amount of the bonus can be a flat fee, or it could be more complicated—in the case of recidivism bonuses, the bonus could be inmate-specific, depending on “the probability and social cost of recidivism for each inmate”—or it could even be determined by competitive bidding. 226Low, supra note 222, at 46; see also infra Part III.C.3. It’s often charged that private prisons have little incentive to invest in rehabilitation, 227The same charge can also be leveled against the public sector, where incentives generally aren’t strong. Currently, private prisons do invest in rehabilitative inputs as required by their contracts—something that isn’t always required in the public sector. and in fact have an incentive to try to increase recidivism, so that they can get (at least some of) the same inmates back later; if this is so, the bonuses should be at least high enough to counteract this incentive so rehabilitating inmates is affirmatively attractive to prison firms. 228See Avio, supra note 168, at 150; Pozen, supra note 79, at 283–84; James Theodore Gentry, Note, The Panopticon Revisited: The Problem of Monitoring Private Prisons, 96 Yale L.J. 353, 362–63 (1986).

Though I focus here on monetary rewards and penalties, there are other possibilities. High performance could, instead of increasing a firm’s compensation in the individual contract, merely confer a reputational benefit, increasing its probability of winning future bids. 229See Conservative Party, supra note 204, at 73–74 (describing Avon Park Youth Academy in Florida as “a prison rewarded by results,” even though its only reward was having its contract renewed, “a decision clearly influenced” by its lower recidivism results); Dicker, supra note 123, at 25. One could give out certificates 230Burt S. Barnow, The Effects of Performance Standards on State and Local Programs, in Evaluating Welfare and Training Programs 277, 286 (Charles F. Manski & Irwin Garfinkel eds., 1992). or “even simply publiciz[e] league tables of recidivism performance.” 231Pozen, supra note 79, at 283; accord Cullen et al., supra note 13, at 86. Or one could reward good performers by giving them more flexibility in future contracts. 232See Barnow, supra note 230, at 286.

b. Rewards or Penalties

Going back to monetary incentives, one can choose between penalties for bad performance and rewards for good performance 233See Thomas, supra note 138, at 108–09. —or one could have both—though the difference needn’t be that important.

Consider a “rewards” contract that offers a $1 per diem reward for each unit of quality on a hypothetical 0-to-10 scale, so the potential reward is $0 to $10. Suppose Acme Corrections Corp. expects to achieve a quality level of 5 at a total cost of $35 per diem. 234This is taking into account the incentive effects of the $1-per-unit reward. Perhaps earlier, with fixed-price contracts, Acme only achieved, say, a quality level of 3 at a total cost of $32. Then it would be willing to submit a bid of $30 or above for the project; it would just cover its costs with the $30 payment plus the $5 reward. (Recall that prison bids are bids on how much money the contractor will get from the government; a $30 per diem winning bid means that the contractor will be paid $30 per inmate-day.) Suppose bidding is competitive, other firms have similar technology, and Acme is the most efficient firm; then Acme wins the auction with its $30 bid. 235I discuss auction-theoretic considerations like the winner’s curse at infra text accompanying note 256. (A less efficient firm, say one that would require $36 per diem to achieve quality level 5, wouldn’t bid below $31, so Acme, as a more efficient firm, would be automatically rewarded up front for its higher quality by having a better chance of winning the auction. 236See Gentry, supra note 228, at 363. The bids don’t tell us the true social cost, the true cost to the government, or the true quality—that requires waiting for the actual realized level of quality, which determines the level of the reward—but they do signal which firm is (or believes that it is) more efficient. 237See also infra text accompanying notes 256–57. )

Now consider an alternative “penalties” contract that offers a $1 penalty for each unit of quality below 10 (i.e., 7 units of quality lead to a $3 penalty). This contract has equivalent incentive effects to the previous one: a provider will invest in a unit of quality as long as its cost of doing so is under $1. 238Here, I’m abstracting away from behavioral factors that might make rewards more attractive than punishments. See Cass R. Sunstein, Introduction to Behavioral Law and Economics 1, 5 (Cass R. Sunstein ed., 2000); Christine Jolls et al., A Behavioral Approach to Law and Economics, in Behavioral Law and Economics, supra at 30–31; see also Cullen et al., supra note 13, at 85 (“[U]nless a manager is truly oppositional and incompetent, we would not favor the use of negative sanctions—sticks—to coerce compliance with efforts to reduce recidivism. In the long run, such meanness would risk creating collective defiance and a failed reform.”). Therefore, these incentives, as before, make Acme expect to achieve the same quality level of 5, which we have seen carries a total cost of $35 per diem. Now Acme is willing to submit a bid of $40 or above for the project; it would just cover its cost with the $40 payment minus the $5 penalty. Again, with the competitive bidding assumptions listed above, Acme wins the auction with its $40 bid.

So even though the contracts look different, they have essentially identical incentives, and any superficial differences between them are, roughly speaking, ironed out in the bidding process. The provider’s degree of risk aversion doesn’t change the result. The government can offer contracts with penalties, but then it will pay more to the winning bidder; or it can offer contracts with rewards, and the winning bidder will be satisfied with less. (One difference might be in the timing of the payments: if the base price is paid up front while rewards or penalties are processed some time later, the first contract is somewhat less valuable than the second because its payments are more delayed.) 239See infra text accompanying note 392.

c. Controlling for Baselines

In the same way, it probably doesn’t make a huge difference whether the compensation takes into account the baseline level of quality.

Controlling for baselines is a huge issue in the literature on performance measures. 240See, e.g., Dicker, supra note 123, at 20 & fig.2 (discussing use of “performance of control groups” or a whole range of control methods); Gaes et al., supra note 7, at 159 (citing Carolyn J. Heinrich, Outcomes-Based Performance Management in the Public Sector: Implications for Government Accountability and Effectiveness, 62 Pub. Admin. Rev. 712 (2002) (questioning, as characterized by Gaes, “whether outcome measures in the absence of a control or comparison group can provide meaningful information” in the context of the Job Training Partnership Act)); Barnow, supra note 230, at 281 (“[P]erformance management systems [could] measure outcomes relative to [a] standard. . . . [that is] set to take into account what would have occurred in the absence of the program . . . .”); Kyle, supra note 162, at 2112 (controlling for “age, prior criminal history, and sex”); id. at 2113 & n.136 (controlling for crime rates). For instance, an early paper on performance measures, by Gloria Grizzle and coauthors, discussed methodological issues regarding what makes for a good performance measure. 241Gloria A. Grizzle et al., Basic Issues in Corrections Performance 4 (1982). A large part of the discussion focused on doing the proper econometric modeling to figure out the causal factors behind a performance measure. 242See id. at 91. Figuring out these causal factors is important for at least two reasons (beyond merely understanding the process). One is to have a sense of what input or output measures to use if the outcome measures aren’t available in a given case. 243See infra Part II.D. Another is to be able to properly assign credit, so providers who get a bad (or good) population of inmates aren’t blamed (or praised) for bad (or good) results. 244See Grizzle et al., supra note 241, at 91.

Similarly, Gerald Gaes and his coauthors argue that “social scientists should push ultimate outcomes as far as they can be pushed,” 245Gaes et al., supra note 7, at 7. but that, in light of the other factors that affect recidivism, “[i]t is also desirable to have more direct measures of intermediate changes to human behavior that precede desistance, and that may be influenced by criminal justice interventions.” 246Id. They don’t directly list desirable performance measures—they give an example of performance measures for the specific element of “Prison Security Performance,” 247Id. at 142 tbl.10.1. though they stress that one should do a similar exercise for other elements of prison performance such as health care. 248See id. at 141. The main characteristic of their approach is its emphasis on adequately modeling prison performance in terms of individual-level and institutional-level independent variables so that one can properly attribute credit where credit is due, avoid blaming prisons for factors beyond their control like the characteristics of the inmates, and figure out what inputs are actually important in producing prison performance. 249See id. at 144 (discussing differences with Logan model); see also id. at 4 (suggesting “develop[ing] an expected rate of crime for a community or an expected rate of misconduct for a prison based on characteristics of the people and inmates”). For instance, for health care, rather than measure (or in addition to measuring) the prevalence of a disease in the prison, which indicates the potential for transmission, it would be useful to use the number of cases in the incoming population as a baseline, and measure the number of new cases. 250See id. at 38.

Is all this necessary? Let’s do our numerical example again: Consider the rewards contract discussed above, with a $1 per diem reward for every unit of quality on a 0-to-10 scale; 251See supra text accompanying notes 234–35 the winning bidder, who expected to deliver quality level 5 at a cost of $35, would have won the contract with a bid of $30. Now consider a rewards contract that controls for the baseline level of quality; suppose the expected level of quality for this prison is 4, so a quality level of 5 would yield a reward of $1.

The only effect of the quality adjustment is to reduce reward payments by $4. A bidder who was willing to bid $30 on the unadjusted contract would be willing to bid $34 on the adjusted contract, to take into account the $4 reduction in the expected reward. Either way, the payoff is the same to the contractor—and the price is the same to the government. The government saves $4 on reward payments but pays it all out again in the base contract price that emerges from the auction. Jeremy Bentham argued against controlling for baselines two centuries ago:

I would make [the contractor] pay so much for every one that died, without troubling myself whether any care of his could have kept the man alive. To be sure he would make me pay for this in the contract; but as I should receive it from him afterwards, what it cost me in the long run would be no great matter. . . .

. . . [Under this system,] you need not doubt of his fondness of these his adopted children; of whom whosoever may chance while under his wing to depart this vale of tears, will be sure to leave one sincere mourner at least . . . . 252Gentry, supra note 228, at 362 n.52 (alterations in original) (quoting 1 Jeremy Bentham, Panopticon 71–73 (Dublin 1791)).

To be sure, the bidder has to have a way to figure out that the expected level of quality is 4. This requires two things. First, the bidder should have a belief about the proper model to predict the baseline quality level; different bidders can have competing beliefs about reality that lead them to different predictions. Second, it needs to have enough information about the population of inmates to plug into its model. Where either of these is absent, the contractor won’t know how much to bid—this might lead to excessive payments from the taxpayer’s point of view or insufficient payments from the contractor’s point of view—but the incentive effects will remain the same.

So while adjusting for the baseline is relevant for various reasons—it allows one to more accurately assign praise or blame, rank different facilities, 253See Gaes et al., supra note 7, at 144 (discussing concern with rank-ordering institutions). and so on—it doesn’t seem absolutely necessary for a compensation scheme to provide the proper incentives for improvement.

Moreover, risk aversion makes a difference here, 254Recall that it didn’t in the reasoning establishing the equivalence of reward and penalty contracts. See supra Part II.C.2.b. but not in the way one would expect. Controlling for baselines might even increase risk, depending on the uncertainty in the calculation of the baseline. 255Without controlling for baselines, the winning contractor gets a contract price of P and a performance-based reward R, bears costs of C, and his payoff is P + R – C; the variance of the payoff is var(R) + var(C) if R and C are independent. Now let’s control for baselines; for simplicity, assume this just involves subtracting an adjustment A from the reward, where A is determined by the expected baseline level of performance. The contract price becomes P', and the contractor’s new payoff is P' + R – A – C. If A has no randomness—everyone knows the government’s formula and everyone knows the underlying data that the government is plugging into the formula—then var(A) = 0 and the variance of the new payoff is the same var(R) + var(C). But if the data or the formula is somewhat uncertain, var(A) is positive, so the variance of the new payoff is var(R) + var(A) + var(C) if R, A, and C are independent, which is greater.This doesn’t necessarily have to happen. Suppose, for instance, that R, A, and C aren’t independent, but instead there’s some negative covariance among R, A, and C. Then the randomness of A might cancel out some of the randomness of R and C, and the adjustment can indeed reduce risk. The point in the text, though, is that this needn’t be the case, and the adjustment, though often defended as a risk-reducing move for contractors, could end up doing the opposite.

If the contractor gets too little, there is the concern that it might not be able to fund the project and might go bankrupt within the contractual term. But this is the same concern that happens with all bidding. Whether or not we adjust the payment for the baseline, the winning bid under a low-bid system will be subject to the “winner’s curse.” 256See, e.g., Patrick Bolton & Mathias Dewatripont, Contract Theory 283–85 (2005). As a simple example, consider many firms with identical technology. They each have slightly different models for predicting how profitable a prison will be, and firms with higher predictions will submit lower bids. At most one of these models is correct; everyone else’s model is incorrect to some degree. The lowest bid will thus come from the bidder who makes the most wildly incorrect overestimate of his profits. Sophisticated bidders adjust their bids to take the winner’s curse into account, but the winning bidder might either be unsophisticated or end up not having adjusted his bid enough. So the threat of contractors who go bankrupt—or of contractors who bid low and then try and hold the government up for more money 257See Jody Freeman, The Private Role in Public Governance, 75 N.Y.U. L. Rev. 543, 574 (2000); Robert W. Poole, Jr., Privatization, in Concise Encyclopedia of Economics (2008), available at http://www.econlib.org/library/Enc/Privatization.html; Mary Sigler, Private Prisons, Public Functions, and the Meaning of Punishment, 38 Fla. St. U. L. Rev. 149, 155 (2010). See generally Oliver Hart, Firms, Contracts, and Financial Structure (1995) (discussing opportunistic behavior in contract relationships). —is real. But, again, this happens regardless of whether we adjust for baselines. The solution is instead to require performance bonds, to rely on a track record of past performance (and restrict complete newcomers to small projects until they’ve proven themselves), or otherwise to try to weed out financially unsophisticated or untrustworthy parties.

d. Discrete vs. Continuous Measures

Note that, in the preceding example, the contract price varied continuously with the level of quality. 258Well, the example as worded involved discrete jumps, but one can easily imagine the prorated version. The “continuous” scheme is also called a “distance travelled” scheme. Dicker, supra note 123, at 16 (internal quotation marks omitted); see infra text accompanying notes 422–25, 436. Another possibility would have been to use a binary compensation scheme, where the reward or penalty is contingent on whether one reaches a particular target. This could look like “Get a fixed reward only if you achieve less than 50% recidivism.” 259See Harding, supra note 72, at 68 (“x per cent of participants [in a remedial literacy class] reaching attainment level y in z months.”).

These binary schemes, while easier to implement, are problematic in several ways. Providers who don’t expect to be able to reach anywhere near the target have little incentive to try to achieve anything at all. 260See Dicker, supra note 123, at 19 (explaining that a continuous measure “may incentivise providers to engage with high-risk offenders who are unlikely to achieve absolute desistance”); Harding, supra note 72, at 68. Providers who do expect to be able to reach the target quite comfortably have little incentive to try to achieve anything additional. 261On the other hand, incentives are very large for those who could be just under the cutoff but could also reach the cutoff; but even then, unless the cutoff is a magical point, it’s probably more socially optimal to provide continuous incentives. Providers who may or may not be able to reach the target are subjected to more risk than they would bear under a continuous scheme. 262Kyle also notes the following advantage of a sliding scale: it “would reduce the likelihood that private companies would receive an undeserved windfall—the farther in standard deviations from the mean the private prison is, the more likely a causal relationship that should be rewarded exists.” Kyle, supra note 162, at 2112. More accurately, this depends on the likely effect of rehabilitative measures versus the likely magnitude of unobserved factors: it could be that a truly exceptional performance in fact reflects an unusually (and unobservedly) good or rehabilitable crop of inmates. Perhaps a large corporation might act somewhat risk-neutrally, so risk won’t matter; but smaller firms or nonprofits may refrain from bidding, or may require more money to take the project, or may be reluctant to try high-expected-value but risky strategies. 263See infra Part III.B.2. Some also mention the possibility that the public could see the continuous measure as being “too lenient.” See, e.g., Dicker, supra note 123, at 20.

(Of course, one could also imagine intermediate reward schemes: for example, the reward could be almost flat for any level of recidivism above 50% and increase rapidly at or below 50%, for instance, “Get a reward of $0.01 for every percentage-point reduction of recidivism below 100% and down to 50%, and then a reward of $1.00 for every percentage-point reduction beyond 50%.” 264See Dicker, supra note 123, at 24 (“[C]reate a minimum threshold of achievement that providers must attain before payments commence.”); id. at 25 (discussing a “target accelerator,” where increases are rewarded at an increasing rate). British performance contracts, where payments don’t start until the decrease in recidivism is 5% or 7.5%, and where payments are capped once the decrease is high enough, fit this mold. 265See supra note 213 and accompanying text. At this point I won’t do anything more than signal the existence of such contracts, though the optimal slope of the compensation scheme is something I’ll return to below when I discuss risk allocation. 266See infra Part III.B.2. )

The same is true of penalties that may occur during the contractual term. Governments can terminate their contracts 267See Tennessee CCA 2007 contract, supra note 67, § D.3 (“The State may terminate this Contract without cause for any reason.”); id. § D.4 (“If the Contractor fails to properly perform its obligations under this Contract in a timely or proper manner, or if the Contractor violates any terms of this Contract, the State shall have the right to immediately terminate the Contract and withhold payments in excess of fair compensation for completed services.”). —this is a form of binary scheme—though this is a rare remedy that tends to be reserved for the most extreme abuses. 268See Dolovich, supra note 5, at 495–500; Developments in the Law—The Law of Prisons, supra note 9, at 1883–84. Providing for graduated financial penalties for abuses of different severity is probably a better solution than merely providing for contract rescission, because draconian penalties are less likely to be used. Not that termination isn’t appropriate in extreme cases—governments should always retain the ability to take over a prison if a contract is terminated. 269See supra text accompanying note 181. The need to retain a credible threat of termination is one reason to prefer that governments, not prison firms, own the prisons, since government ownership of the physical facility reduces termination costs. 270See Levinson, supra note 24, at 90 (discussing the “possibility of [a] contractor’s bankruptcy which would require rapid, costly interim arrangements”).

3. The Feasibility of Merit Pay in the Public Sector

Note, also, that while I’ve been primarily concentrating on incentives for private firms, there’s no inherent reason why performance-based compensation can’t also be considered for public prison wardens 271See Cullen et al., supra note 13, at 84; Rick Hills, Merit Pay for Prison Wardens?, PrawfsBlawg (Mar. 3, 2008), http://prawfsblawg.blogs.com/prawfsblawg/2008/03/tying-the-salar.html. —consider the example of Leeds noted above 272See supra text accompanying notes 210. —especially if we simultaneously pursue competitive neutrality. 273See supra text accompanying notes 183–97. As John Donahue says, “the fundamental distinction is between competitive output-based relationships and noncompetitive input-based relationships rather than between profit-seekers and civil servants per se.” 274John D. Donahue, The Privatization Decision: Public Ends, Private Means 82 (1989) (italics omitted). Proposals to reward public servants for high performance aren’t rare, 275See Niskanen, supra note 185, at 201–09; Barnow, supra note 230, at 307–08; Lynn, supra note 165, at 11; cf. David N. Figlio & Lawrence W. Kenny, Individual Teacher Incentives and Student Performance, 91 J. Pub. Econ. 901, 903 (2007) (examining effects of teacher merit pay). and merit-based compensation in the public sector has increased in recent years, 276See Jon D. Michaels, Privatization’s Progeny, 101 Geo. L.J. 1023, 1048 & nn.124–25, 1049 (2013). but it’s still hard to find in corrections. 277See Thomas, supra note 138, at 109.

Researchers differ on how feasible merit pay is in the public sector; 278Compare Harding, supra note 145, at 304 (“The financial incentive should drive performance in a way that is impossible in the state-funded public sector.”), and McDonald & Patten, supra note 155, at xxvii (“When structuring contracts, [governments] also have opportunities to create incentives and mechanisms for accountability that are more difficult to implement in existing public organizations.”), with Gaes et al., supra note 7, at 151 (“There is certainly no reason why public administrators cannot award bonuses to the best performing public prison managers and their employees, while also demoting, firing, or transferring the managers who are substandard.”), and id. at 180 (“Contrary to the point of view of some scholars, we do not see how a contract offers an advantage over public provision.”). I won’t resolve the argument here, except to note that the Government Performance and Results Act of 1993 has a procedure by which agencies can make “proposals to waive administrative procedural requirements and controls, including specification of personnel staffing levels, limitations on compensation or remuneration, and prohibitions or restrictions on funding transfers . . . in return for specific individual or organization accountability to achieve a performance goal.” 279Government Performance and Results Act of 1993 § 5(a), 31 U.S.C. § 9703(a) (2006). Any such proposal, according to the statute, must “describe the anticipated effects on performance resulting from greater managerial or organizational flexibility, discretion, and authority, and . . . quantify the expected improvements in performance resulting from any waiver,” 280Id. § 9703(b). “precisely express the monetary change in compensation or remuneration amounts, such as bonuses or awards, that shall result from meeting, exceeding, or failing to meet performance goals,” 281Id. § 9703(c). and be “endorsed by the agency that established the requirement.” 282Id. § 9703(d). Just reading the statutory language—and this is a statute that purports to encourage flexibility—doesn’t exactly give one confidence that public-sector flexibility is easy to come by, at least in the federal system.

At the very least, though, to the extent performance-based compensation is a good idea in the private sector, it may well also be a good idea in the public sector. 283Some of the disadvantages of performance-based compensation may apply with different force in the public than in the private sector. For instance, the concern that market incentives will discourage public-interested people from entering the industry, see infra Part III.B.1, seems to not apply at all to private providers, who are presumably already profit motivated. How feasible that is is a question of the relevant state or federal law.

D. What Measures to Choose

The earlier discussion of how to define recidivism 284See supra text accompanying notes 120–26. shows that a lot rides on choosing the outcome measures judiciously. This applies across the board, not just to recidivism. This section considers two distinct aspects of performance measures. The first is that wherever outcome measures have been used, output measures haven’t been abandoned. The second is that what outcomes to measure—and even whether something counts as an output or outcome measure—is inevitably a value-laden question, which must be resolved for a performance-based compensation scheme to go forward. The inevitable incompleteness of outcome measures—and therefore the need to supplement outcomes with outputs—can give rise to undesirable strategic behavior, which I discuss in a later section. 285See infra Part III.C.2. This section only covers what measures should rationally be chosen, not the real-world possibilities for manipulation in the choice of goals. That sort of strategic behavior is covered infra Part III.C.1.

Adopting specific outcomes to measure is equivalent to adopting what John DiIulio calls an “operational” goal—“an image of a desired future state of affairs that can be compared unambiguously to an actual or existing state of affairs.” 286John J. DiIulio, Jr., Measuring Performance When There Is No Bottom Line, in Performance Measures for the Criminal Justice System 142, 144 (1993). “‘Improving the quality of public education in America’ is a nonoperational goal; ‘Increasing the average verbal and math SAT scores of public school students by 20% between the year 1992 and the year 2000’ is an operational goal.” 287Id. Similarly, “[r]eforming criminals” is nonoperational, while “[d]oubling the rate of inmate participation in prison industry programs” is operational. 288Id. (internal quotation marks omitted). That last goal was output-based, but there’s no reason we can’t, as in the education example, adopt an outcome-based goal—we could just agree on a convenient if arbitrary measure of how well criminals are reformed, such as the two-year reconviction rate. 289See, e.g., Cullen et al., supra note 13, at 87 (“[T]he objectives should be stated in a concrete, unambiguous way: ‘The XYZ prison will reduce recidivism of released high-risk offenders so that no more than 20% are arrested within 1 year.’”). Moreover, there’s no reason to adopt a numerical target as the goal (which would be binary); the goal might merely be (thinking more continuously) to reduce the rate as far as possible. 290See supra text accompanying notes 258–63. And there’s no reason to adopt a unique goal: multiple operational goals can be implemented in one part of an overall index that determines compensation. 291Of course, one should also set the weights to be put on the various measures in the index. See infra Part III.A; cf. Grizzle et al., supra note 241, at 80; Barnow, supra note 230, at 284 (“Even if the program has a single objective, it may be advantageous to use several measures as proxies if an ideal measure cannot be developed.”). Realistically, the number of measures shouldn’t be too large, lest it overwhelm decision-makers’ cognitive capacities. One can’t think about all things simultaneously.

A useful way to explore this question is to examine some existing prison performance measures. Perhaps one of the oldest formal approaches 292A survey article in 1975 reviewed 231 studies of particular performance measures, but at that time, in the authors’ opinions, there had apparently never been any comprehensive approach. (Presumably the Moos approach, if it was considered, was thought to be insufficiently comprehensive or not performance oriented.) The American Correctional Association had published comprehensive standards in the late 1970s, but they were primarily process oriented. See Grizzle et al., supra note 241, at 4 (citing Douglas Lipton et al., The Effectiveness of Correctional Treatment: A Survey of Treatment Evaluation Studies (1975); Am. Corr. Ass’n, Manual of Standards for Adult Correctional Institutions (1977)). to measuring prison performance is the Correctional Institutions Environment Scale 293Michael Montgomery, Performance Measures and Private Prisons, in 3 Prison Privatization, supra note 142, at 187, 193. developed by Rudolph Moos in the late 1960s 294Kevin N. Wright & James Boudouris, An Assessment of the Moos Correctional Institutions Environment Scale, 19 J. Res. in Crime & Delinq. 255, 255 (1982). and often used in the 1970s. 295See id. (citing sources using the Moos scale in the 1970s). The Moos scale contains several subscales: “Involvement,” “Support,” “Expressiveness,” “Autonomy,” “Practical Orientation,” “Personal Problem Orientation,” “Order and Organization,” “Clarity,” and “Staff Control.” 296Id. at 257 (quoting Rudolf H. Moos, Evaluating Correctional and Community Settings 41 (1975)). These elements generally aren’t true performance measures, and it’s immediately apparent from their definitions that some are highly impressionistic. The “Involvement” variable “[m]easures how active and energetic residents are”; the “Support” variable “[m]easures the extent to which residents are encouraged to be helpful and supportive”; and so on, with an emphasis on measuring the extent of supportiveness and encouragement. 297Id. The scale was criticized because it wasn’t clear what the difference between some of the elements was and to what extent they were correlated, 298Id. at 256; Elaine Selo, Book Review, 4 J. Crim. Just. 348, 349 (1976) (reviewing Moos, supra note 296). and even to what extent they described a real phenomenon. 299Wright & Boudouris, supra note 294, at 258. Some critics wrote that “when the CIES is administered and the individual scores are tallied and averaged, we really have no idea what the scores on the nine subscales indicate.” 300Id. at 274. Ultimately, the scale was “determined not to possess acceptable validity.” 301Montgomery, supra note 293, at 193.

A later approach, described in 1980 in a report by Martha Burt, uses five types of measures: “Measures of Security,” including the escape rate and escape seriousness; “Measures of Living and Safety Conditions,” such as victimization, overcrowding, and sanitation; “Measures of Inmate Health” (both physical and mental); “Intermediate Products of Programs and Services” like improvements in basic skills and vocational education completed; and “Measures of Post-Release Success,” including employment success and recidivism. 302Martha R. Burt, Urban Inst., Measuring Prison Results: Ways to Monitor and Evaluate Corrections Performance, at ii (1980). Only the fourth category is explicitly labeled “Intermediate Products,” 303Id. at 97–105. but some of the other measures are also outputs, not outcomes—see, for instance, the use of hospitalizations and sick days in the measures of inmate health. 304Id. at 72.

The mixing of output and outcome measures is fairly typical; John DiIulio criticizes the BOP’s Key Indicators/Strategic Support System 305See generally William G. Saylor, Fed. Bureau of Prisons, Developing a Strategic Support System: Monitoring the Bureau’s Performance via Trends in Key Indicators (1988). for also “indiscriminate[ly] mixing . . . process [i.e., input or output] and performance [i.e., outcome] measures.” 306DiIulio, supra note 286, at 150–52. But DiIulio himself has measured prison quality in terms of “order (rates of individual and collective violence and other forms of misconduct), amenity (availability of clean cells, decent food, etc.), and service (availability of work opportunities, educational programs, etc.)” 307John J. DiIulio, Jr., Recovering the Public Management Variable: Lessons from Schools, Prisons, and Armies, 49 Pub. Adm. Rev. 127, 129 (1989) (citing John J. DiIulio, Jr., Governing Prisons: A Comparative Study of Correctional Management (1987)). : note the output measures in the inclusion of the availability (not the effectiveness) of programming.

The MTC Institute, the research arm of the private prison firm Management & Training Corp. (MTC), likewise calls for holding prisons accountable for “outcomes”; but these “outcomes” include not only assaults, escapes, recidivism, overcrowding, and the like, but also outputs like “[s]ubstance abuse education/treatment completions” and “[p]roportion of inmates participating in spiritual development program(s).” 308MTC Inst., Measuring Success: Improving the Effectiveness of Correctional Facilities 5 (2006).

The American Correctional Association’s performance-based standards for correctional health care 309Am. Corr. Ass’n, Performance-Based Standards for Correctional Health Care in Adult Correctional Institutions (2002). These standards are discussed in Gaes et al., supra note 7, at 37–38. raise the same issue. Some of these are true outcomes, like “the rate of positive tuberculin skin tests” 310Gaes et al., supra note 7, at 37. or the suicide rate, 311Id. at 38. though others are process measures or expected practices, like whether an offender “is informed about access to health systems and the grievance procedure.” 312Id. at 37. The Prison Social Climate Survey, which is based on inmate and staff surveys, likewise mixes outcomes (such as crowding 313Michael W. Ross et al., Measurement of Prison Social Climate: A Comparison of an Inmate Measure in England and the USA, 10 Punishment & Soc’y 447, 460–61 tbl.3 (2008). or safety 314Id. at 463, 466–67 tbl.5. ) with outputs (such as whether the prison is a pleasant place to work for staff 315See William G. Saylor et al., Fed. Bureau of Prisons, Prison Social Climate Survey: Reliability and Validity Analyses of the Work Environment Constructs 3–8 (1996); see also supra text accompanying note 87. ).

It is clear, then, that outcomes and output measures tend to go together; no doubt this is because not all outcomes are well measurable. Moreover, the choice of measures, and even the basic question of whether to classify a measure as an output or an outcome, is inevitably value-laden. We can see this clearly by examining Charles Logan’s “quality of confinement” index, one of the more highly regarded prison performance measures. 316Charles H. Logan, Criminal Justice Performance Measures for Prisons, in Performance Measures for the Criminal Justice System, supra note 286, at 19; see Gaes et al., supra note 7, at xi (calling Logan’s approach “one serious attempt to develop a coherent theoretical and empirical approach to prison performance measurement”); id. at 5–8 (discussing Logan’s model). Joan Petersilia has also developed performance measures for community corrections. See Joan Petersilia, Measuring the Performance of Community Corrections, in Performance Measures for the Criminal Justice System, supra note 286, at 60, 77–78. But many of these are input measures (“Number and type of supervision contacts”), output measures (“Number of hours/days performed community service”), or outcome measures that can be easily gamed (“Number of arrests and technical violation[s] during supervision”). Id. at 77–78. Logan’s performance indicators focus on eight broad categories:

1. “Security (‘keep them in’).”

2. “Safety (‘keep them safe’).”

3. “Order (‘keep them in line’).”

4. “Care (‘keep them healthy’).”

5. “Activity (‘keep them busy’).”

6. “Justice (‘do it with fairness’).”

7. “Conditions (‘without undue suffering’).”

8. “Management (‘as efficiently as possible’).” 317Logan, supra note 316, at 27–32.

Each of these categories contains a number of subdimensions: for instance, the “security” category contains the subdimensions of security procedures, drug use, significant incidents, community exposure, freedom of movement, and staffing adequacy. 318Id. at 34. The “safety” category contains safety of inmates, safety of staff, dangerousness of inmates, safety of environment, and (again) staffing adequacy. 319Id.

And, finally, Logan decomposes these subdimensions into specific numerical measures: number of escapes, proportion of staff who have observed staff ignoring inmate misconduct, ratio of resident population to security staff, drug-related incidents, and so on. 320Id. at 42–43. In all—over all eight dimensions—there are a few hundred measures. 321See id. at 42–57. Logan used this index to evaluate three women’s prisons in New Mexico and West Virginia. 322See Logan, supra note 61, at 7–11, 13, 17; Logan, supra note 61, at 577–78, 583 fig.1.

None of Logan’s measures involve how many inmates get rehabilitated. But this is also intentional. First, actual rehabilitation is out of the direct control of prisons. Logan has a preference for measuring things that are within prisons’ “direct sphere of influence”; 323Logan, supra note 316, at 24. what we measure “ought to be achievable and measurable mostly within the prison itself.” 324Id. Second, including rehabilitation endorses the rehabilitative model of criminal punishment, and Logan makes it clear that his model is retributive, not rehabilitative. 325Id. at 19, 21, 24. Prisons, in his view, shouldn’t “add to (any more than . . . avoid or . . . compensate for) the pain and suffering inherent in being forcibly separated from civil society[;] . . . coercive confinement carries with it an obligation to meet the basic needs of prisoners at a reasonable standard of decency.” 326Id. at 25.

Logan’s concern for focusing on what a prison can control and focusing on the retributive goal merge in the following statement: “a prison does not have to justify itself as a tool of rehabilitation or crime control or any other instrumental purpose at which an army of critics will forever claim it to be a failure.” 327Id. at 26. (Of course “[i]t would be very nice if the prison programs [counted in the ‘activity’ dimension] had rehabilitative effects,” and perhaps they do, but whether they do or don’t doesn’t enter into the index.) 328Id. at 29 n.7.

Fair enough. What this illustrates is that you can’t judge particular measures to be desirable unless you have a normative theory that proclaims certain goals to be desirable, and such a political discussion is necessary before one can commit oneself to a particular form of performance measures. 329John DiIulio thus seems incorrect when he states that Logan’s work “dispels the worry that any such measurement scheme is bound to be based exclusively on one or another moral or ideological view of the ‘ends of criminal justice’” and that his measures “encompass and satisfy every major school of thought about ‘what prisons are for.’” DiIulio, supra note 286, at 152. “[W]ithout declared goals, we cannot hold a jurisdiction accountable, and performance measurement is meaningless.” 330Gaes et al., supra note 7, at xii.

This normative issue arises wherever performance measurements are used. John DiIulio describes how John Chubb and Terry Moe “measure school performance strictly in terms of pupils’ achievements on a battery of standardized tests, accepting the schools’ value as instruments of socialization and civics training as important but secondary.” 331DiIulio, supra note 307, at 129, 131 (citing John E. Chubb & Terry M. Moe, Politics, Markets, and America’s Schools (1990)); see also John E. Chubb, Why the Current Wave of School Reform Will Fail, Pub. Interest, Winter 1988, at 28. On the relative value of test scores vs. socialization, your mileage may vary.

Likewise, for the correctional system, there is a great variety of available goals; 332See Gaes et al., supra note 7, at 10–16 tbl.1.1; see also supra text accompanying note 291. prisons should punish, rehabilitate, deter, incapacitate, and reintegrate—all, says John DiIulio, “without violating the public conscience (humane treatment), jeopardizing the public law (constitutional rights), emptying the public purse (cost containment), or weakening the tradition of State and local public administration (federalism).” 333John J. DiIulio, Jr., Rethinking the Criminal Justice System: Toward a New Paradigm, in Performance Measures for the Criminal Justice System, supra note 286, at 1, 6 (italics omitted). So we need to have a political discussion about what the appropriate goals are.

One’s normative theory also affects whether a particular measure is an output or an outcome; this classification, 334See supra text accompanying note 17. which I’ve been using casually so far as if it were value-neutral, is in fact anything but. If we didn’t care about inmates but only cared about the outside world, perhaps only recidivism would be relevant. The quality of living conditions or inmate literacy would merely be outputs, which we would care about only to the extent that they affected recidivism; they wouldn’t need to independently enter the compensation function as long as we already counted recidivism. But we might independently care about inmates’ living conditions for many reasons; if we do, living conditions become an actual outcome of the system.

Thus, some of Logan’s dimensions, like “activity,” which I’m inclined to call an output measure, 335See DiIulio, supra note 286, at 152 (distinguishing between certain “process measures” and certain “performance measures” within Logan’s “security” dimension); see also Gaes, supra note 36, at 23 (“[J]urisdictions that buy prison services are most concerned about internal performance measures such as order, health, case management, program services, and safety.”). might be an outcome measure given Logan’s normative perspective. The same goes for variables like prison employees’ job satisfaction 336See supra text accompanying note 315. (which I consider an output measure because it’s only instrumentally relevant to prison quality, but which others who care about labor conditions might treat differently) or whether inmates have difficulty concentrating 337Ross et al., supra note 313, at 464 tbl.4. (which—unlike, say, overcrowding or physical safety 338See supra text accompanying notes 313–14. —many may not consider an appropriate dimension for prison evaluation).

Some of the measures, though, for instance the number of urinalysis tests conducted based on suspicion, are output measures under any definition, and these have the problem that it’s ambiguous whether they’re good or bad. Do we want more or fewer urinalysis tests based on suspicion? More tests could mean that drug use has gone up; or it could mean that prison authorities are getting more serious about controlling drug use. Even worse, prison authorities’ stringency is something prison authorities themselves can control; this is a serious problem, which I discuss below. 339See infra Part III.C.2.

As a final note, I’ll mention that while it’s vitally important to have good cost measures that are adequate for comparing public and private prisons, it’s not necessary to include cost in the private contractor’s compensation. If we couldn’t measure quality, perhaps there would be a role for rate-of-return regulation, which might at least limit some of the private sector’s harmful cost-cutting tendencies. 340Cf. W. Kip Viscusi et al., Economics of Regulation and Antitrust 430–36 (4th ed. 2005) (discussing the theory of traditional rate-of-return regulation, primarily in the context of electric utilities). But if we’re going to engage in quality measurement, we might as well enforce quality directly by getting the rewards or penalties “right”; 341See infra Part III.A. let the private firms worry about their own costs. 342Cf. Shapiro & Steinzor, supra note 223, at 1767 (questioning whether reducing regulatory cost to the private sector should be a GPRA performance measure for the FDA).

III. Concerns and Critiques

Despite the advantages discussed in the previous section, the use of performance measures has its pitfalls.

One concern, so obvious as not to merit its own section heading, is the issue of administrative costs. Recidivism-based contracts require one to track released prisoners adequately. Perhaps there would be substantial startup costs 343See Durham, supra note 20, at 66; see also id. at 67 (“‘At none of the sites we examined were attempts made by government to evaluate rehabilitative success.’” (quoting Judith Hackett et al., Issues in Contracting for the Private Operation of Prisons and Jails 48 (1987))). —though current probation and parole systems already track releases and monitor employment, recidivism, and other relevant outcomes, so at least some of these costs are already sunk. Moreover, if performance-based contracting is beneficial at all, its benefits are probably great enough that these startup costs are worthwhile. 344Cf. Low, supra note 222, at 64; Alexander Volokh, Prison Vouchers, 160 U. Pa. L. Rev. 779, 834 (2012). One might also measure a random sample of inmates, see Low, supra note 222, at 46 n.298, though this might exacerbate risk issues. See infra Part III.B.2.

This Part focuses on other concerns and critiques. First, there is the concern that one can’t set the proper prices in a theoretically defensible way. Second, there’s the concern that performance-based compensation will affect market structure, either by driving out the public-interested or by driving out the risk-averse. Third, there’s the concern that performance-based compensation will lead to undesirable strategic behavior, for instance via manipulation of the choice of performance goals, by distorting effort across various dimensions of performance, by distorting effort across various types of inmate, and by encouraging outright falsification.

A. What Prices to Set

The focus on performance measures might seem grating to those who criticize the turn toward efficiency analysis and comparative effectiveness and stress moral considerations. 345Sharon Dolovich critiques “comparative efficiency” analysis and stresses moral considerations, see, e.g., Dolovich, supra note 3; Dolovich, supra note 5, though to my knowledge she hasn’t opined on performance measures. But one can support performance measures without endorsing efficiency in any way—in fact, as a better way of achieving particular moral goals.

I myself have been critical of a focus on efficiency in the context of regulatory cost–benefit analysis, 346See Alexander Volokh, Rationality or Rationalism? The Positive and Normative Flaws of Cost–Benefit Analysis, 48 Hous. L. Rev. 79 (2011). another example of hard-numbers-based accountability. To restate the problems of cost–benefit analysis in the prison context: What’s the social value of having less recidivism? To ask this in an economic context, we’d have to know either the maximum amount people would be willing to pay to reduce crime, or the minimum amount people would accept to acquiesce in an increase in crime. These are in general different amounts, and the choice between them is value-laden. 347See id. at 82–83. Suppose we choose one of these numbers to measure; we may find that, when surveyed, some people—who reject the very notion of paying or being paid for reductions or increases in crime—give answers of zero or infinity for their willingness to pay or accept; the number we’re seeking may just not exist for these people. 348See id. at 84. Some people may have true willingness to pay or accept, but they don’t even know what these numbers are: we only come to know such numbers because of our experience paying for and consuming goods and services in the real world, but increases and decreases in crime generally aren’t traded in markets. So the very act of asking for the number may bring some number into being, but there’s no reason to suppose it’s accurate. 349See id. at 85–86. Or, people may know the number, but there’s no incentive for them to truthfully reveal it in surveys.

Even if we use non-survey-based estimation methods—How much higher are house prices in lower-crime areas? How much do people pay to avoid crime?—econometric analysis isn’t good enough to give us the correct number. 350See id. at 86–88. The political process is also likely to manipulate the numbers. 351See, e.g., Frank Ackerman & Lisa Heinzerling, Pricing the Priceless: Cost–Benefit Analysis of Environmental Protection, 150 U. Pa. L. Rev. 1553, 1580 (2002) (explaining that regulated industry has an incentive to overstate costs). Moreover, concerns that are hard to quantify can be systematically slighted. 352See id. at 1579–80. This gives rise to potentially serious strategic behavior, which I address in infra Part III.C.2.

In short, “[w]hile cost–benefit analysis may look like rationality, perhaps it’s merely rationalism.” 353Volokh, supra note 346, at 88. And these are just the problems for people who accept the utilitarian basis of cost–benefit analysis. The problems for those who reject utilitarianism as a moral philosophy are even greater. 354See id. at 88–91. Surely corrections policy, of all things, should be decided with respect to morality and human values rather than numbers?

These are real problems with cost–benefit analysis, and they potentially infect performance-based contracting as well. Setting the incentives in a performance-based contract means either setting the relative weights of every component of performance, 355See supra note 291 and accompanying text. or (equivalently) setting the separate rewards or penalties for every component of performance. 356These two approaches are identical. Let xi be the ith component of performance and pi be the reward for that component. Then the total performance-based component of compensation is Σpixi. Let P be the sum of the prices (P = Σpi). Then the performance-based component of compensation can be expressed as Σ(pi/P)xi = P Σwixi, where wi = pi/P is the weight placed on the ith component of performance and P is the price attached to the overall performance index Σwixi. Getting the prices “right,” in an efficiency sense, requires knowing the social value of the different components of performance; 357Not that the price necessarily has to be equal to the social value—paying the price requires incurring the deadweight losses involved in raising tax money, and making incentives so high-powered might make the contract too risky. See infra Part III.B.2 for a discussion of optimal risk allocation. But at least the optimal prices (or at least the relative optimal prices of the different components of performance), from an efficiency perspective, will probably bear some relation to social value. if that social value doesn’t exist or can’t be measured, it’s an impossible task.

I agree and disagree with this critique.

As to the moral objection, even though moral values have an extremely important place in criminal law and policy, I have no essential problem with using economic incentives to improve outcomes in the process. I’ve argued elsewhere that the valid arguments for or against private prisons generally are essentially empirical; 358See generally Volokh, supra note 6. measuring performance is an essential part of that debate, even though the choice of outcomes to measure is a value-laden enterprise; 359See supra text accompanying notes 329–32. and attaching incentives to those performance measures is eminently justifiable if the result is a morally more just correctional system.

As to the theoretical incoherence objection, I’m sympathetic. But the enterprise can still be salvaged if we adopt a humble attitude. 360Cf. Christopher C. DeMuth & Douglas H. Ginsburg, Rationalism in Regulation, 108 Mich. L. Rev. 877, 885 (2010) (reviewing Richard L. Revesz & Michael A. Livermore, Retaking Rationality: How Cost–Benefit Analysis Can Better Protect the Environment and Our Health (2008)) (stating that Richard Revesz and Michael Livermore “regard regulatory cost-benefit analysis as a device for social engineering. . . . Our view of cost-benefit analysis is much more modest. . . . [W]e think that many important political questions . . . cannot be effectively decided by cost-benefit analysis.”). Rather than trying to achieve incentives that are correct in some abstract sense, 361See DiIulio, supra note 286, at 146. we can just try to muddle through and ameliorate the problems of the current system by attaching some weight to factors that traditionally haven’t been rewarded. None of this requires buying into the efficiency norm. 362See Barnow, supra note 230, at 279. Maybe the weights will be wrong, but “[t]he basic question . . . is whether the dangers of providing improper incentives through imperfect models outweigh the benefits of providing program direction and accountability.” 363Id. at 307; see also M. Todd Henderson & Frederick Tung, Paying Bank Examiners for Performance, Regulation, Spring 2012, at 32, 36 (“We . . . make no attempt to offer firm prescriptions for the optimal ratio [between debt and equity]. The mix should induce regulators to care about bank profits but not at the expense of risk shifting to creditors.”). Is adding this element of imperfect, numbers-based accountability better than not? The remaining sections in this Part address this question.

B. Effects on Market Structure

This section discusses how performance-based compensation can change the composition of providers. First, it will attract providers who respond better to market incentives, which might affect the overall public-interestedness of the industry. Second, because performance-based compensation is riskier than flat-rate compensation, it will discourage the more risk-averse providers.

1. Public-Interestedness

Todd Henderson and Fred Tung address this concern in the context of performance-based compensation for regulators. If regulators are currently public-interested, introducing market incentives might change the culture within the agency. “Once diligence has been priced, perhaps some regulators will slack.” 364M. Todd Henderson & Frederick Tung, Pay for Regulator Performance, 85 S. Cal. L. Rev. 1003, 1056–57 (2012).

This form of compensation will also affect the mix of people who choose to be regulators. “Public service motives might be displaced by financial motivations among new hires . . . . Eventually, the composition of the regulatory agency could change for the worse.” 365Id. at 1057.

Henderson and Tung conclude, citing the crowding out literature, 366Id. at 1057 n.182 (citing Ernst Fehr & Armin Falk, Psychological Foundations of Incentives, 46 Eur. Econ. Rev. 687, 688 (2002); Uri Gneezy & Aldo Rustichini, A Fine Is a Price, 29 J. Legal Stud. 1, 14 (2000)). that this is possible, though not necessary: “public spiritedness and financial reward [might not be] mutually exclusive, at least up to a point.” 367Id. at 1057. Moreover, changing the mix of individuals “could be a good,” given the failures of the current crop of people. 368Id.

The same arguments can be applied to performance-based compensation for prison providers. I would add that, to the extent we’re considering performance-based compensation for private firms rather than public servants, 369But see supra Part II.C.3 (discussing possibilities for merit pay for public prison wardens). we don’t need to worry about making providers any more mercenary than they already are: if there’s one thing advocates and opponents of private prisons agree on, it’s that private prison providers are a profit-oriented bunch. Not that the profit motive is inconsistent with public-interestedness: public servants “profit” from their employment too without being accused of thereby necessarily becoming mercenaries; 370See Volokh, supra note 6, at 178–85. moreover, corrections professionals move between the public and private sectors and presumably take their professionalism with them. Finally, as I discuss further below, 371See infra Part III.B.2. performance-based compensation, combined with social impact bonds, allows nonprofits to raise money from private investors, so to this extent, introducing the profit motive may turn out to be a great boon for charitable and public-interested providers.

2. Risk and Capital Requirements

a. The Risk Is in the Slope

We’ve seen, in the discussion of Charles Logan’s approach above, 372See supra text accompanying notes 316–28 the concern that performance measures be based on factors that the relevant actor can actually control. Such concerns crop up frequently; 373See, e.g., Dicker, supra note 123, at 17; Grizzle et al., supra note 241, at 48–49; Petersilia, supra note 316, at 66. James Q. Wilson even says, in the context of police departments, that public order and safety aren’t “‘real’ measures of overall success” because whatever about them is measurable “can only partially, if at all, be affected by police behavior.” 374James Q. Wilson, The Problem of Defining Agency Success, in Performance Measures for the Criminal Justice System, supra note 286, at 156, 159; see also DiIulio, supra note 333, at 1–2, 13. When he does favor a “micro-level measure of success” of whether the neighborhood is becoming safer and more orderly, 375Wilson, supra note 374, at 160–62. he still limits it to cases where the level of danger and disorder is “amenable . . . to improvement by a given, feasible level of police and public action.” 376Id. at 161. The concern in the literature over controlling for baselines is similarly motivated. 377See supra text accompanying notes 240–50.

This seems mistaken: overall public order and safety are measures of the success of police departments, and (given that prison programs and conditions affect recidivism to some extent 378See Camp et al., supra note 99; M. Keith Chen & Jesse M. Shapiro, Do Harsher Prison Conditions Reduce Recidivism? A Discontinuity-Based Approach, 9 Am. L. & Econ. Rev. 1, 17–21 (2007); DiIulio, supra note 333, at 2; Francesco Drago et al., Prison Conditions and Recidivism, 13 Am. L. & Econ. Rev. 103, 120–25 (2011); Daniel S. Nagin et al., Imprisonment and Reoffending, in 38 Crime and Justice: A Review of Research 115, 115 (Michael Tonry ed., 2009); Rafael Di Tella & Ernesto Schargrodsky, Criminal Recidivism After Prison and Electronic Monitoring 28 (Nat’l Bureau of Econ. Research, Working Paper No. 15602, 2009), available at http://www.nber.org/papers/w15602.pdf; see also Gaes et al., supra note 7, at 124 (citing Robert J. Sampson & John H. Laub, Crime in the Making: Pathways and Turning Points Through Life (1993); Shawn D. Bushway et al., An Empirical Framework for Studying Desistance as a Process, 39 Criminology 491 (2001); Jeffrey Grogger, The Effect of Arrest on the Employment and Earnings of Young Men, 110 Q.J. Econ. 51 (1995); Jeffrey R. Kling, The Effect of Prison Sentence Length on the Subsequent Employment and Earnings of Criminal Defendants (Woodrow Wilson Sch., Discussion Paper No. 208, 1999)); id. at 129 (citing Alex R. Piquero et al., Assessing the Impact of Exposure Time and Incapacitation on Longitudinal Trajectories of Criminal Offending, 16 J. Adolescent Res. 54 (2001)); id. at 136 (citing Gerald G. Gaes & Newton Kendig, The Skill Sets and Health Care Needs of Released Offenders, in Papers Prepared for the “From Prison to Home” Conference 93 (2002), available at http://www.urban.org/UploadedPDF/410629_ReleasedOffenders.pdf). ) lower recidivism is a measure of the success of prisons. 379DiIulio, supra note 333, at 5 (“[C]rime rates and recidivism rates are indeed important[, though not the only,] measures of the system’s performance, which ought to be continually used and refined.”). It’s true that these measures come with a lot of noise attached—that is, with a lot of omitted variables reflecting the contribution of other people’s efforts, as well as environmental variables. 380See Barnow, supra note 230, at 281 (explaining that these are “gross outcome measures . . . in the sense that they do not necessarily reflect gains from the program”). But that doesn’t mean it’s wrong to use them for purposes of accountability, or even to tie compensation to them.

There are two concerns about using these noisy measures: first, that the level of the unobserved variables at the beginning of the contract might establish a high-recidivism baseline, for which the contractor will have to be compensated very highly, or a low-recidivism baseline, for which the contractor will collect more than it deserves; and second, that variation in the unobserved variables might create a lot of risk for the contractor. 381See Harding, supra note 72, at 68 (“[T]he human variables are too volatile for any contractor to be expected to stand or fall by outputs alone . . . .”); Lynn, supra note 165, at 12; Kyle, supra note 162, at 2112.

As to the first concern, recall the earlier discussion about whether to control for baselines. 382See supra Part II.C.2.c. Whether or not we adjust the contract price to take into account the baseline expected level of performance should have little effect on government expenditures: a high baseline translates into less quality being attributed to the contractor and thus to lower payments, and so the contractor will demand more money at the bidding stage, and vice versa.

The same reasoning addresses the second concern: because controlling for baselines doesn’t affect the contractor’s payout—it basically amounts to adding or subtracting a constant, which is subtracted or added right back at the bidding stage—it also doesn’t necessarily affect risk. 383See supra text accompanying note 255.

What definitely affects risk is not the level of compensation, but its slope. A contract that compensates the contractor based on the portion of performance he was able to control isn’t necessarily less risky than one that doesn’t, but a contract where the per-quality-unit price is lower is less risky. Thus, in the numerical example discussed earlier, 384See supra text accompanying notes 234–38, 251. a contract with a $1 reward per quality unit (regardless of the fixed component of the contract) is riskier than a contract with a $0.50 reward per quality unit; an even less risky contract is one with a $0 reward per quality unit, that is, a fixed-price contract, which is close to the norm; and the least risky possible contract is the cost-plus contract typical of rate-of-return regulation. 385See supra text accompanying note 340. Compensation based on a continuous quality measure is less risky than compensation based on a discrete quality measure (as long as the provider has some chance of being on either side of the cutoff); 386See supra text accompanying notes 258–70. thus, “$1 for each quality unit” is less risky than “$5 but only if you get five quality units.”

Do we care? Perhaps large corporations like CCA or The GEO Group, which are publicly traded 387See Who We Are, CCA, http://www.cca.com/who-we-are (last visited Dec. 12, 2013) (noting that CCA joined the NYSE in 1994); Historic Milestones, GEO Group, http://www.geogroup.com/history (last visited Dec. 12, 2013) (noting that GEO joined the NYSE in 1996). and diversified across many contracts, 388See Who We Are, supra note 387 (“CCA houses nearly 80,000 inmates in more than 60 facilities . . . . CCA currently partners with all three federal corrections agencies . . . , many states[,] and local municipalities.”); Who We Are, GEO Group, http://www.geogroup.com/about_us (last visited Dec. 12, 2013) (“GEO’s operations include the management and/or ownership of 96 correctional, detention and residential treatment facilities encompassing approximately 73,000 beds.”). can handle the risk; and they cover three-quarters of the industry. 389See Volokh, supra note 9, at 1237 & n.182 (relying on data from 1999). Smaller, privately held companies like MTC 390See id. (noting a 5%–8% share for MTC in 1999); Overview, Mgmt. & Training Corp., http://www.mtctrains.com/about-mtc/overview (last visited Dec. 12, 2013) (“Management & Training Corporation (MTC) is a privately- held company . . . .”). may be more sensitive to risk. Various potential entrants, especially nonprofits, 391For discussions of the possibility of nonprofit prisons, see Low, supra note 222, at 4, and Richard Moran, Op-Ed., A Third Option: Nonprofit Prisons, N.Y. Times, Aug. 23, 1997, § 1, at 23. Compare with discussions of the advantages of nonprofit schools. See Byron W. Brown, Why Governments Run Schools, 11 Econ. Educ. Rev. 287, 293–96 (1992); John Morley, Note, For-Profit and Nonprofit Charter Schools: An Agency Costs Approach, 115 Yale L.J. 1782, 1795–1810 (2006); cf. also Education: Raising the Bar, Economist, June 15–21, 2013, at 30 (discussing risk issues for schools and teachers resulting from educational accountability schemes). must be even more sensitive. Adopting high-powered (i.e., high-slope) contracts may scare away the most risk-sensitive potential bidders, leaving the field to a few large corporations. (And it isn’t just a matter of risk: if the fixed part of the contract is paid up front while the reward is paid later, possibly a few years later once recidivism statistics come in, this might disadvantage small companies or nonprofits with limited access to capital markets.) 392Nicholson, supra note 216, at 6 (“The working capital requirements of a [payment-by-results] system will cause problems for Small and Medium Sized Enterprises and the third sector [i.e., nonprofits] in bidding for contracts.”). This has potential implications for the competitiveness of the industry, 393Dicker, supra note 123, at 24 (explaining that high incentives, through high risk, will “reduce the diversity of the market” by making it less attractive for nonprofits or small companies). possibilities for innovation, 394Id. at 23. On the relationship between market concentration and innovation, see Richard Gilbert, Looking for Mr. Schumpeter: Where Are We in the Competition–Innovation Debate, in 6 Innovation Policy and the Economy 159 (Adam B. Jaffe et al. eds., 2006), for an argument that the relationship is inconclusive. and the political influence that drives changes in criminal law. 395See Volokh, supra note 9, at 1213–14 (arguing that the degree of concentration of the industry can affect the political influence the industry exerts); see also Volokh, Privatization, Free Riding, supra note 142, at 64; Volokh, The Effect of Privatization, supra note 142, at 10–11.

But the contract doesn’t have to be especially high-stakes. 396Dicker, supra note 123, at 6. The optimal level of risk transfer is probably less than 100%. Rewarding the contractor for increases in quality with a price equal to the social value of quality gives the contractor great incentives but also (since the per-unit reward will be high) subjects him to high risk. 397See supra note 357. Flat-fee contracts are relatively low risk 398Though not zero-risk: recall that the least risky contracts are cost-plus. See supra text accompanying note 385. but also low incentive. Some moderate level of risk transfer will optimally balance incentives with risk. 399See Dicker, supra note 123, at 23–24; Nicholson, supra note 216, at 6–7; see also Bolton & Dewatripont, supra note 256, at 13 (“[W]hen both employer and employee are risk averse, they will optimally share business risk.”). Thus, the incentive-based portion of the contract is only 10% of the contract price in U.K.’s Doncaster prison, 400See Johnson, supra note 209. and was only 5% in the Federal Bureau of Prisons’ Taft demonstration project. 401See supra text accompanying note 172. Recall that in Britain’s Job Deal program, 30% of the payment is conditional, and only a third of that is related to “hard outcomes,” and even some of those outcomes are slightly “soft.” 402See supra text accompanying note 218.

For the cash-flow issue noted above, 403See supra text accompanying note 392. one can also “change the timing of payments to providers,” for instance by making “a payment every six months for each offender who has not been reconvicted.” 404Dicker, supra note 123, at 24.

b. Financing Nonprofits: Social Impact Bonds

The need to encourage the nonprofit sector calls for innovative funding mechanisms. Nonprofit prisons have been suggested 405See sources cited supra note 391. though never implemented. 406See Low, supra note 222, at 4–5 (suggesting creation of nonprofit prisons on “an experimental basis”). But in light of the widespread concern that private prison firms will cut quality to save money, 407See, e.g., Dolovich, supra note 5, at 474–80. the nonprofit form seems like an obvious alternative.

Ed Glaeser and Andrei Shleifer discuss the value of nonprofit status: by weakening the provider’s incentives to maximize profits, nonprofit status can be a valuable signal of quality when quality itself is nonverifiable. 408Edward L. Glaeser & Andrei Shleifer, Not-for-Profit Entrepreneurs, 81 J. Pub. Econ. 99, 102 (2001). (Even using performance measures, it’s reasonable to suppose that some aspects of quality will remain nonverifiable; the value of nonprofit status depends on how important these remaining nonverifiable components are.) 409See infra Part III.C.2. Moreover, altruistic entrepreneurs will tend to be attracted to the nonprofit form. 410Glaeser & Shleifer, supra note 408, at 102.

And Timothy Besley and Maitreesh Ghatak show that, when both a provider and the government can make productive investments in a project, and when the provider is altruistic, then the provider should own the project if it values it more than the government does. 411See Timothy Besley & Maitreesh Ghatak, Government Versus Private Ownership of Public Goods, 116 Q.J. Econ. 1343, 1347 (2001). Privatization can thus be more beneficial in the presence of altruistic providers.

But banks or private equity houses are unlikely to finance such nonprofits, especially when the nonprofits don’t have much of a track record. 412Nicholson, supra note 216, at 6–7.

Social impact bonds have been proposed as a funding mechanism for nonprofits. 413Jeffrey B. Liebman, Social Impact Bonds: A Promising New Financing Model to Accelerate Social Innovation and Improve Government Performance 2 (2011); see also Cullen et al., supra note 13, at 88–89; Michaels, supra note 276, at 1052–58; Shifali Baliga, Note, Shaping the Success of Social Impact Bonds in the United States: Lessons Learned from the Privatization of U.S. Prisons, 63 Duke L.J. 437 (2013). Rather than contracting directly with a provider, the government contracts with a middleman. This middleman, a “social impact bond-issuing organization,” 414Liebman, supra note 413, at 2 (internal quotation marks omitted). has two functions. First, it hires the staff to provide the service. Second, it sells bonds to investors, particularly philanthropic ones; 415Though social impact bonds in the United States have been funded by non-philanthropic types such as Goldman Sachs. See Social Impact Bonds: Being Good Pays, Economist, Aug. 18–24, 2012, at 28. these bonds are essentially claims to a portion of the performance-based compensation. If the service provider fulfills the performance-based goals and receives its reward from the government, the investors make money; otherwise they don’t. 416Liebman, supra note 413, at 2. At the Peterborough prison in the U.K., the government doesn’t pay anything unless recidivism is 7.5% less than in a comparison group, 417Id. and payments are capped when the difference reaches 13%. 418See supra note 213 and accompanying text. The provider’s employees may well be paid something like a flat wage, so their monetary incentives aren’t great; but the bond-issuing organization and the philanthropic investors (whose money is on the line) are probably better at monitoring the staff than the government would be. 419See infra text accompanying note 459. It remains to be seen, though, whether the philanthropic sector will provide enough funds for nonprofit prison providers to be a viable alternative to for-profit corporations. 420See Nicholson, supra note 216, at 16, 18; Big Hurdles to Be Overcome if Social Impact Bonds to Move from Margins of Public Services, Says Think Tank, Soc. Market Found. (July 31, 2013), http://www.smf.co.uk/media/news/big-hurdles-be-overcome-if-social-impact-bonds-move-margins-public-services-says-think-tank/; Tom Clougherty, Pioneering Social Impact Bonds in the United Kingdom, Reason Found. (Aug. 13, 2013), http://reason.org/news/show/pioneering-social-impact-bonds.

C. Undesirable Strategic Behavior

Perhaps the biggest disadvantage of using performance-based compensation is the strategic behavior it may spawn. This strategic behavior may come in several flavors. First, there is the possibility of manipulating the performance goals themselves. Second, effort may be distorted away from some dimensions and toward others. Third, effort may be distorted away from some groups of inmates and toward others. And fourth, performance measures may simply be falsified.

1. Manipulating the Goals

The Government Performance and Results Act of 1993 421Pub. L. No. 103-62, 107 Stat. 285 (codified as amended in scattered sections of 5 and 31 U.S.C.); see supra note 165. is one example of a recent effort to inject performance measures into government agencies that hasn’t lived up to the hopes of its supporters.

One of the problems was that setting the performance goals was left to the agencies that were to be evaluated. Agencies “tr[ied] to protect themselves by devising euphemistic performance goals in order to ensure that they [could] ‘pass’ their own grading criteria.” 422Shapiro & Steinzor, supra note 223, at 1744; see also id. at 1760 (“[A]gencies compelled to function in an antiregulatory, even hostile, political atmosphere are predictably reluctant to tell the truth to power. Instead, their goal has become convincing congressional and White House overseers that they are performing well despite budgets that are inadequate for effective implementation of their missions.”). The Patent and Trademark Office, faced with rising backlogs, set itself progressively longer targets of “average total pendency” from year to year, rising from 27.7 months in fiscal year 2003 to 29.8 months in 2004, 31.0 months in 2005, and 31.3 months in 2006. 423Schoen, supra note 165, at 480. John DiIulio had warned of a similar danger: “that measurement-driven government workers will, so to speak, ‘set up the target in order to facilitate shooting.’” 424DiIulio, supra note 286, at 154. The similar problem was observed in the U.K., where “Next Steps agencies,” a type of performance-based organization, set their own targets, which often reflected merely an incremental improvement rather than an assessment of what was possible. 425U.S. Gen. Accounting Office, supra note 223, at 7.

Why would agencies set goals in such unambitious ways? Perhaps because agencies feared being punished for bad performance with budget cuts. 426Shapiro & Steinzor, supra note 223, at 1744. Various politicians have indeed suggested that agencies’ funding be tied to their performance results, 427See Schoen, supra note 165, at 464 (citing The Results Act: Are We Getting Results?: Hearings Before the H. Comm. on Gov’t Reform & Oversight, 105th Cong. 20 (1997) (statement of Rep. Richard K. Armey, H. Majority Leader)); id. at 465 (citing Seven Years of GPRA: Has the Results Act Provided Results?: Hearing Before the Subcomm. on Gov’t Mgmt., Info., & Tech. of the H. Comm. on Gov’t Reform, 106th Cong. 20 (2000) (statement of Rep. Pete Sessions, Chairman, H. Results Caucus)); id. at 466–67 (citing Office of Mgmt. & Budget, Exec. Office of the President, The President’s Management Agenda (2002), available at http://www.whitehouse.gov/sites/default/files/omb/budget/fy2002/mgmt.pdf). and agencies’ performance results have indeed been relevant to the administration’s budget proposals, 428See Eileen Norcross & Joseph Adamson, An Analysis of the Office of Management and Budget’s Program Assessment Rating Tool (PART) for Fiscal Year 2008, at 25 (unpublished working paper), http://mercatus.org/sites/default/files/publication/20070725_Analysis_of_PART_for_FY_2008.pdf; Eileen Norcross & Kyle McKenzie, An Analysis of the Office of Management and Budget’s Program Assessment Rating Tool (PART) for Fiscal Year 2007, at 22 (May 2006) (unpublished working paper), http://mercatus.org/sites/default/files/publication/PDF__An_Analysis_of_the_Office_of_Management_of_Budgets_Program_Assessment_Rating_Tool_for_FY_2007.pdf. so this fear may have been reasonable—though it’s also possible that performance scores have merely given political cover for cuts to programs that the administration wanted to defund for other reasons. 429See John B. Gilmour & David E. Lewis, Does Performance Budgeting Work? An Examination of the Office of Management & Budget’s PART Scores, 66 Pub. Admin. Rev. 742, 751 (2006); Norcross & Adamson, supra note 428, at 29–30. On the other hand, the link between funding and performance results isn’t that tight, 430See, e.g., Teresa Curristine, Reforming the U.S. Department of Transportation: Challenges and Opportunities of the Government Performance and Results Act for Federal-State Relations, Publius, Winter 2002, at 25, 42; Jerry Ellig, Has GPRA Increased the Availability and Use of Performance Information? 5 (George Mason Univ. Mercatus Ctr., Working Paper No. 09-03, 2009). so agencies’ concern to look good may also have been a matter of good public relations.

The problem here is that agencies were allowed to think up their own performance goals; that they weren’t required to meet those goals (and indeed, that often the performance information simply wasn’t used in decisionmaking 431See Schoen, supra note 165, at 466 (citing 10 Years of GPRA—Results, Demonstrated: Hearings Before the Subcomm. on Gov’t Efficiency & Fin. Mgmt. of the H. Comm. on Gov’t Reform, 108th Cong. 4 (2004) (statement of Rep. Edolphus Towns, Member, Subcomm. on Gov’t Efficiency & Fin. Mgmt. of the H. Comm. on Gov’t Reform)); Ellig, supra note 430, at 1 (citing Jerry Ellig & Jerry Brito, Toward a More Perfect Union: Regulatory Analysis and Performance Management, 8 Fla. St. U. Bus. Rev. 1 (2009)); id. at 2 (citing U.S. Gov’t Accountability Office, GAO-08-1026T, Government Performance: Lessons Learned for the Next Administration on Using Performance Information to Improve Results (2008)). ); and that the goals were binary rather than continuous outcome measures, 432See supra Part II.C.2.d. for example, that the EPA “will ‘achieve and maintain at least 95 percent of the maximum score on readiness evaluation criteria in each region’” 433Shapiro & Steinzor, supra note 223, at 1764 (quoting EPA, 2006–2011 EPA Strategic Plan: Charting Our Course 67 (2006), available at http://nepis.epa.gov/Adobe/PDF/P1001IPK.PDF). or “‘complete an additional 975 Superfund-lead hazardous substance removal actions.’” 434Id. at 1765 (quoting EPA, supra note 433, at 67); see also id. at 1773 (“[A]ttain water quality standards for all pollutants and impairments in more than 2,250 water bodies . . . . [R]emove at least 5,600 . . . specific causes of water body impairment . . . . [I]mprove water quality conditions in 250 . . . impaired watersheds nationwide . . . .” (altered capitalization and third and fifth omissions in original) (quoting EPA, supra note 433, at 43)).

These problems have easy fixes, though perhaps they weren’t so easy in the context of the GPRA, where the problem was primarily giving performance incentives to public agencies. Prison contracts—or merit pay systems for public prison wardens 435See supra Part II.C.3. —should be set by the Department of Corrections or the relevant contracting authority; goals shouldn’t be set by those who we want to comply with them. No one should be “required” to meet any performance standard, but compensation should be tied to these measures; providers’ self-interest should take care of the rest. And adopting continuous outcome measures, rather than binary goals, reduces the ability to choose easy goals: one can game “achieve x% recidivism” by setting an appropriately high level of x, but it’s harder to game the general effort of reducing recidivism where additional reductions are met with additional rewards. 436See also Barnow, supra note 230, at 287 (discussing “whether the size of the award should vary with the extent to which standards are exceeded”); id. at 291–92 (“The national standards are set, based on experience in prior years, so that approximately 75 percent of the nation’s [providers] will exceed the standards . . . .”).

2. Distortion Across Dimensions of Performance

Everyone agrees that, in most areas, performance has multiple dimensions. 437See supra text accompanying notes 291, 332–33. Each dimension, in a performance-based contract, will have its price, 438See supra text accompanying note 356. and the relative prices of different dimensions will determine how the contractor will allocate his effort among them. 439See Bengt Holmstrom & Paul Milgrom, Multitask Principal–Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design, 7 J.L. Econ. & Org. (Special Issue) 24, 25 (1991) (“In general, when there are multiple tasks, incentive pay serves not only to allocate risks and to motivate hard work, it also serves to direct the allocation of the agents’ attention among their various duties.”).

So far, so good, as long as the set of performance measures is complete. But what if some dimensions of performance are unmeasurable? 440See supra text accompanying note 352 (noting retributivism as a possible unmeasurable dimension). Just as cost–benefit analysis is accused of slighting the soft factors, 441See supra text accompanying note 352. so might performance measures be biased in favor of the measurable. The result is that the contractor’s work effort will be biased in the direction of increasing the measurable dimensions of performance. 442See Grizzle et al., supra note 241, at 50–51.

Consider a hypothetical example involving education. Suppose there are two measures of educational quality: “hard” (e.g., knowledge of facts) and “soft” (e.g., citizenship, critical thinking, socialization). Without hard accountability, it might be hard to give teachers serious incentives, so they will slack in their overall work effort, but divide their time between hard and soft education in a balanced way. With hard accountability, teachers can get much higher-powered incentives, but these incentives will tend to be skewed toward the hard measures of education. Thus, the teachers will provide more overall work effort, but their time will be skewed toward hard education. 443See Holmstrom & Milgrom, supra note 439, at 25 (“It would be better, . . . critics argue, to pay a fixed wage without any incentive scheme than to base teachers’ compensation only on the limited dimensions of student achievement that can be effectively measured.” (italics omitted)); see also Peter Smith, On the Unintended Consequences of Publishing Performance Data in the Public Sector, 18 Int’l J. Pub. Admin. 277, 284 (1995) (discussing “tunnel vision”); Education: Raising the Bar, supra note 391.

How serious is this problem? It depends how important it is to have a balance between hard and soft factors, how hard the soft factors really are to measure, and how harmful the status quo of low work effort is. 444See Holmstrom & Milgrom, supra note 439, at 26 (“[T]he desirability of providing incentives for any one activity decreases with the difficulty of measuring performance in any other activities that make competing demands on the agent’s time and attention.”). It also depends on whether the one type of education makes the other type easier or harder for the teacher; an excessively high-powered accountability system focusing, say, on standardized test scores could easily promote a “teaching to the test” strategy that can be antithetical to critical thinking (at the very least by taking up class time that could be otherwise used); 445This assumes that test scores really are a true outcome measure, even if a partial one. Perhaps this is too charitable, though: it may be better to characterize test scores as proxy measures for a type of intelligence, and “teaching to the test” as a form of manipulation, as described below. See infra text accompanying note 457. this isn’t necessarily so, but it may be likely. 446See Holmstrom & Milgrom, supra note 439, at 25; id. at 32–33 (explaining that the desirability of incentives for measurable tasks depends on whether measurable and unmeasurable tasks are complements or substitutes in an agent’s cost function). Providing high-powered but skewed accountability may be beneficial in severely dysfunctional school systems where neither hard nor soft factors are taught well, but it may be harmful in better school systems.

Analogously, in the prison context, one can imagine two dimensions of quality: humane in-prison conditions and low recidivism after prison. Suppose one of these is harder to measure than the other. In-prison conditions could be harder to measure if effective monitoring is difficult; 447See infra Part III.C.4. or perhaps recidivism is harder to measure if there aren’t good databases of offenders, especially if released inmates often commit their crimes in other states. Whichever one turns out to be less measurable, we can expect effort to be skewed toward the more measurable one.

Would it make a difference if prison policies were skewed toward humane conditions or toward reducing recidivism? If the two go together—if humane conditions are, on balance, effective at reducing recidivism 448See sources cited supra note 378. —then the inability to monitor both dimensions can be harmless. On the other hand, if bad prison conditions, on balance, reduce recidivism through a general deterrent effect, 449See, e.g., Kelly Bedard & Eric Helland, The Location of Women’s Prisons and the Deterrence Effect of “Harder” Time, 24 Int’l Rev. L. & Econ. 147, 159–61 (2004); Lawrence Katz et al., Prison Conditions, Capital Punishment, and Deterrence, 5 Am. L. & Econ. Rev. 318, 331 (2003); Volokh, supra note 344, at 843–45. But see Tom R. Tyler, Why People Obey the Law 64 (1990) (“The most important normative influence on compliance with the law is the person’s assessment that following the law accords with his or her sense of right and wrong; a second factor is the person’s feeling of obligation to obey the law and allegiance to legal authorities.”); Paul H. Robinson & John M. Darley, The Role of Deterrence in the Formulation of Criminal Law Rules: At Its Worst When Doing Its Best, 91 Geo. L.J. 949, 953–56 (2003). a focus on recidivism could lead to bad prison conditions—in which case there’s no guarantee that high-powered accountability would improve overall quality in the absence of effective in-prison monitoring. Since the precise determinants of recidivism aren’t well understood, this shows the importance of properly monitoring whatever is considered desirable in the prison. 450See infra Part III.C.4; see also Cullen et al., supra note 13, at 84 (“Of course, some correctional managers might attempt to develop a painful prison in hopes of scaring offenders straight. We are confident that these efforts will fail and place managers at a disadvantage.” (citation omitted)).

In the extreme case, where some tasks remain completely unmeasurable and shirking on that task is highly detrimental to overall quality, we should junk the idea of high-powered incentives: the traditional input-and-output approach may then be optimal. 451See Holmstrom & Milgrom, supra note 439, at 27 (“[I]ncentives for a task can be provided in two ways: either the task itself can be rewarded or the marginal opportunity cost for the task can be lowered by removing or reducing the incentives on competing tasks. Constraints are substitutes for performance incentives and are extensively used when it is hard to assess the performance of the agent.”).

If an unmeasurable outcome is represented in the accountability scheme by some inputs or outputs as proxies, the possibilities for undesirable strategic behavior multiply. The previous examples involved ignoring the unmeasurable elements and maximizing the measurable component of performance, rather than maximizing overall performance. Replacing unmeasurable elements with proxies within the provider’s direct control leads to pursuing the proxies for their own sake—which one can uncharitably call “manipulating” the proxy measures.

For example, consider recidivism rates, which I’ve been treating throughout as a true outcome measure. In reality, no one knows true recidivism rates; we don’t know that a released inmate has committed a crime unless we catch him (and, depending on the recidivism measure we’re using, unless we convict him or reincarcerate him). 452See supra text accompanying note 120. So in reality, rather than using the unmeasurable dimension of recidivism, we’re using the measurable proxy of, say, rearrest rates. If the relationship between rearrest rates and true recidivism is stable, using this proxy can be harmless; 453Of course, the relationship between rearrest rates and true recidivism can change—for instance, enforcement agencies might, over time, reallocate resources from one type of crime to another. This raises the question of whether to control for baseline rates. See supra Part II.C.2.c. but more important still is that the contractor not be able to manipulate the rates in ways that don’t correspond to true social improvements.

Thus, if in-prison misconduct is penalized, corrections officers will use their discretion very differently when deciding whether to write up an offense. 454See Gaes et al., supra note 7, at 51. Currently, there is, to the contrary, some incentive for private firms to exaggerate infractions so as to prevent early releases. See Dolovich, supra note 5, at 518–23. If urinalysis tests based on suspicion are rewarded, we can magically expect more inmates to seem suspicious. Perhaps the output (drug tests based on suspicion) seems to have a straightforward correlation with the outcome (inmate drug use, if one chooses to consider that an outcome 455I prefer to think of drug use as neutral in itself, though one can want to control inmate drug use instrumentally for the sake of outcomes like violence or rehabilitation. ); but make it a subject of compensation, and you can’t rely on that correlation anymore. Administrators will start pursuing the output for its own sake. (Random drug tests unrelated to suspicion remove that gaming problem, even if they are more expensive for the same level of deterrence.)

Similarly, in the context of community corrections, Joan Petersilia criticizes the use of recidivism rates as an outcome measure: if the number of arrests increases, is that bad because more people are committing offenses? Or is it good because probation officers are better at detecting technical violations and sending released offenders back to prison? 456See Petersilia, supra note 316, at 66–67; see also Gaes et al., supra note 7, at 23–24; supra note 76. If we decided that increased arrest rates were bad and attached penalties to that variable, we might find arrest rates plummeting, but merely because probation officers stopped supervising their charges very closely.

Recidivism may thus be a bad measure for the accountability of probation officers. But it can be a good measure for the accountability of prisons, provided that prisons leave supervision and rearrest to entirely separate actors. This is a reason to insist on the separation of prisons and probation officers, not granting contracts to criminal justice providers that are too integrated, and more generally preventing prisons from giving any incentives at all, even subtle ones, to probation officers. 457See Smith, supra note 443, at 286, 290–92 (discussing “suboptimization” and “measure fixation”). Similarly, the results of drug testing can be an acceptable measure, but random testing is better than testing based on suspicion. In-prison misconduct can be an acceptable measure, but it should be the type of serious misconduct that’s least likely to be overlooked or characterized as something else.

We might even have to guard against other kinds of gaming: if prisons can affect where prisoners are released, for instance by partnering with post-release job placement programs that have good contacts in particular areas, they can try to have prisoners released in areas where policing is weaker. For understandable political economy reasons, a state Department of Corrections might choose to ignore the welfare of people in other states and tie compensation only to an in-state measure of recidivism; then, the prison does better by finding out-of-state jobs for its inmates. A prison might also try to prevent recidivism by “paying offenders to desist,” but this might be controversial. 458Dicker, supra note 123, at 19.

Of course, even if we only use performance measures to reward providers, providers will inevitably have to translate these incentives into specific input- or output-based incentives to reward their own staff, at least in part—there are limits to the possibilities of stock options. 459On the use of stock options in private prisons, see Volokh, supra note 6, at 174. And such incentives can sometimes backfire for the same reasons that input-based incentives can backfire at the prison level. At one CCA prison in Tennessee, the employee compensation policy discouraged “use-of-force incidents.” 460Braswell v. Corr. Corp. of Am., 419 F. App’x 662, 628 (6th Cir. 2011). In general, this can be positive, but sometimes not: for nine straight months, CCA personnel stopped removing mentally ill inmate Frank Horton from his cell for showers, exercise, and mental health evaluations, because any attempt to do so would have been considered a “use of force” and could have affected their bonuses or pay raises. 461Id. at 623–24. Presumably, though, a provider motivated by good performance measures will have better incentives and better ability to monitor its own staff than the government has to monitor the provider.

3. Distortion Across Types of Inmates

One common complaint about high-powered outcome-based incentives is that they’ll lead to two related phenomena: “creaming”—only taking the easiest inmates—and “parking”—not providing services to the most difficult inmates. 462See Dicker, supra note 123, at 23; see also Richard A. McGowan, Privatize This?: Assessing the Opportunities and Costs of Privatization 166 (2011); Barnow, supra note 230, at 287, 297–98, 305–06; Pozen, supra note 79, at 283; Kyle, supra note 162, at 2112; Inwood, supra note 210. For a recent example of parking in a non-prison context, see Mary Shinn et al., Despite Backlogs, VA Disability Claims Processors Get Bonuses, Wash. Post, Aug. 25, 2013, http://articles.washingtonpost.com/2013-08-25/world/41446536_1_claims-processors-new-claims-backlog. There’s an easy way to prevent providers from taking the easiest inmates: insist that providers take all comers, 463See Gilroy, supra note 163 (“So literally, you have the private vendor take over the exact same population, and then use the same metrics you use to assess the public facilities.”); cf. Volokh, supra note 449, at 806–07 (arguing that requiring prisoners to take all comers makes sense to prevent prisons from systematically rejecting certain inmates). limit opportunities for providers to transfer inmates they don’t like out of the prison, and have assigning agencies not discriminate either in favor of or against particular providers in assignment. 464See supra text accompanying notes 135–36. And the bias toward treating easier inmates can be alleviated by mandating particular services for everyone. There remains, though, the concern that providers will be, for instance, more enthusiastic about providing rehabilitative services to those that can more likely benefit from them.

There are two lines of response to this concern. Clearly, paying the same rate, regardless of how hard the offender is to serve, will lead to parking; one can therefore provide payments that are inmate specific, where a harder-to-serve inmate’s desistance from crime is rewarded more generously than an easier-to-serve inmate’s. 465See Dicker, supra note 123, at 24; Nicholson, supra note 216, at 6–7; David Boyle, The Perils of Obsessive Measurement, RSA (Nov. 1, 2010), http://comment.rsablogs.org.uk/2010/11/01/perils-obsessive-measurement/. These payments can be based on the observable characteristics of the inmate; some characteristics might be illegal to consider while others can be better observed by the provider than by the government, so there will inevitably be some degree of mismatch. 466Cf. Volokh, supra note 344, at 806–07 (discussing inmate characteristics that institutions are able to consider). But a system of nonuniform rewards can generally alleviate parking.

The second line of response would question whether parking is even bad. Suppose some inmates are hard to rehabilitate, so prisons—in the presence of uniform rewards—will tend to spend less time trying to rehabilitate them. Is this bad? Some nonuniformity of rewards will be inevitable—presumably a murder by a released inmate will be penalized more heavily than a minor crime. But suppose there’s a group of inmates whose recidivism is equally harmful. Wouldn’t it be socially beneficial for the provider to concentrate its resources on the ones whose crimes can be prevented most cheaply, so that more inmates can be treated at the same cost? 467One could argue—though I’m not doing so here—that even outright creaming, where prisons only accept the easier-to-treat inmates, might be beneficial, since it might be worthwhile to separate the “better” criminals from the harmful influence of the “worse” ones. See, e.g., Volokh, supra note 449, at 837–38. At least, so an efficiency framework might counsel. If one subscribes to a certain form of equity where everyone should have some amount of (even ineffective) rehabilitation, one might want to fall back on the solution I mentioned above: offering higher payments for the harder-to-treat inmates 468Dicker, supra note 123, at 25. or, if that can’t be done reliably, mandating some amount of inputs or outputs.

4. Falsifying Performance Measures

Finally, when high-stakes compensation depends on numbers, there’s an obvious incentive to falsify the numbers themselves. 469See Smith, supra note 443, at 292; Boyle, supra note 465. Reports of school cheating scandals are commonplace. 470See, e.g., Emily Richmond, Did High-Stakes Testing Cause the Atlanta Schools Teaching Scandal?, Atlantic (Apr. 3, 2013, 11:50 AM), http://www.theatlantic.com/national/archive/2013/04/‌did-high-stakes-testing-cause-the-atlanta-schools-cheating-scandal/274619/. Similarly, in the prison context, private providers plausibly prefer to underreport incidents, at least if they wouldn’t inevitably become known. 471See Joel Dyer, The Perpetual Prisoner Machine: How America Profits from Crime 211, 221 (2000); Gaes et al., supra note 60, at 18; Low, supra note 222, at 39 (citing John L. Clark et al., Report to the Attorney General: Inspection and Review of the Northeast Ohio Correctional Center ch. VII.B.2 (1998) (reporting that CCA’s legal counsel warned administrators not to write reports about incidents because of potential legal liability); id. chs. VIII, XI; Harding, supra note 145, at 323–24); Developments in the Law—The Law of Prisons, supra note 9, at 1884. Failure to report is grounds for contract termination, which can cut in the other direction, but contract termination is a strong remedy that’s rarely used. 472See supra text accompanying notes 267–68. Public prisons, on the other hand, might have an incentive to overreport to get more funds but they also might have an incentive to underreport to make themselves look better compared to private prisons. 473See Gaes et al., supra note 60, at 18. Misconduct data are thus somewhat unreliable, especially if one wants to use them to compare different prisons.

Whichever way the incentives cut, the fact that compensation will inevitably be to some extent based on variables reported by the provider means that it’s important to seriously invest in monitoring. Currently, monitoring practices vary quite a lot, “from minimal attention from a centrally located contract administrator to a combination of a contract administrator and one or more on-site monitors.” 474McDonald et al., supra note 22, at 50. The monitors themselves may have responsibility for more than one facility, which puts them on site at any particular prison once a quarter, once a week, or daily. 475See id. at 50, 51 tbl.4.1. Instead, contracts should provide for a full-time, on-site monitor 476See Thomas, supra note 138, at 109. with “unlimited access to the correctional facilities and assigned correctional units,” 477S.B. 2038, 2012 Leg., Reg. Sess., sec. 1, § 944.7115(8)(d) (Fla. 2012). who isn’t the provider’s employee (even if the contract might mandate that the provider pay his salary as part of the deal). 478See id.; see also Nicole B. Cásarez, Furthering the Accountability Principle in Privatized Federal Corrections: The Need for Access to Private Prison Records, 28 U. Mich. J.L. Reform 249, 293 (1995) (citing Ira P. Robbins, The Legal Dimensions of Private Incarceration, 38 Am. U. L. Rev. 531, 752 (1989)) (explaining that Robbins’s Model Contract “calls for an employee of the contracting agency to have access to prison facilities and all records kept by the contractor at all times”); Low, supra note 222, at 39 (citing Clark et al., supra note 471, ch. XI); Gilroy, supra note 163 (discussing the full-time monitor at each private prison in Ohio plus surprise inspections by the Correctional Institution Inspection Committee). When prisoners are sent out of state, monitoring is more likely to be “on paper” rather than “in person”—which is one reason to keep one’s prisoners in state.

Because the capture of monitors is an enduring concern, 479Cásarez, supra note 478, at 295; Dolovich, supra note 5, at 490, 493–95. other forms of monitoring are possible: a public-interest group could be given inspection rights, 480See Low, supra note 222, at 38. the surrounding community might be designated as a third-party beneficiary, 481See Jody Freeman, Extending Public Law Norms Through Privatization, 116 Harv. L. Rev. 1285, 1317 (2003). or the constitutional tort regime for prisons could be strengthened (rather than weakened, which is the current trend). 482See generally Volokh, supra note 149.

A strong disclosure regime is also probably a good idea. 483See Cásarez, supra note 478, at 293–94 (noting that the American Correctional Association requires that certain records be maintained “for facility accreditation and the contracting agency”).

One way of guaranteeing disclosure is to subject private prisons under contract with the federal government to the Freedom of Information Act, 4845 U.S.C. § 552 (2012). perhaps along the lines of the often-proposed Private Prison Information Act. Private prison firms themselves aren’t “agencies” for the purposes of FOIA, 485See Forsham v. Harris, 445 U.S. 169, 180 (1980) (stating that whether a private firm is subject to FOIA depends on whether it’s subject to extensive, day-to-day government control); see also Cásarez, supra note 478, at 268–79. and the Bureau of Prisons isn’t covered if it hasn’t “created and retained” or doesn’t actually possess the documents. 486See Kissinger v. Reporters Comm. for Freedom of the Press, 445 U.S. 136, 152 (1980) (explaining that FOIA requires an agency to disclose only documents it has “created and retained”); see also Cásarez, supra note 478, at 279–84. Even after these hurdles, much qualifying information, like contracts or incident reports, would be exempt under Exemption 4, which protects “trade secrets and commercial or financial information . . . [that is] privileged or confidential.” 4875 U.S.C. § 552(b)(4); Cásarez, supra note 478, at 284–91. Exemption 4 could be applied either if “disclosure could impair the reliability of data,” 488Cásarez, supra note 478, at 287 (citing Critical Mass Energy Project v. NRC, 975 F.2d 871, 878 (D.C. Cir. 1992)). or if “disclosure would cause substantial competitive injury to the provider.” 489Id. The competitive injury justification could be fairly broad—knowing the terms of a contract, for instance, can reveal the terms of the winning proposal to the winning firm’s competitors. 490See id. at 289; see also supra text accompanying note 36. Indeed, FOIA has been criticized as “a lawful tool of industrial espionage.” 491Cásarez, supra note 478, at 292 (quoting Stephen S. Madsen, Note, Protecting Confidential Business Information from Federal Agency Disclosure After Chrysler Corp. v. Brown, 80 Colum. L. Rev. 109, 113 (1980)) (internal quotation marks omitted). On the other hand, says Cásarez, FOIA provides for the disclosure of “reasonably segregable portion[s]” of documents, 4925 U.S.C. § 552(b). which “should include monitoring and reporting requirements.” 493Cásarez, supra note 478, at 289. Logan counsels against “saddl[ing] private prison operators with expensive monitoring requirements ‘far beyond those that exist for government prisons,’” 494Id. at 260 (quoting Charles H. Logan, Private Prisons: Cons and Pros 147 (1990)). but FOIA applicability would cut in the direction of establishing parity.

Similar legislative fixes are possible in the states: for instance, in Florida and Georgia, open records acts “already apply to private organizations that act on behalf of state agencies.” 495Id. at 296 (citing as examples Fla. Stat. Ann. § 119.011(2) (West 1985); Ga. Code Ann. § 50-18-70(a) (Michie 1994)). All of this (as well as any relevant public-law value) could also be imposed on private contractors by contract; Jody Freeman calls this process “publicization.” 496Freeman, supra note 481, at 1285. The term is pronounced [pŭb’lĭ-kĭ-zā’shən]. Id. at n.1.

Another possibility is to ensure access to the prison by the public and the press. 497Cásarez, supra note 478, at 299 (citing Robbins, supra note 478, at 752–53). Bentham, who had smart things to say about the bidding process two centuries ago, 498See supra text accompanying note 252. also argued for “essentially unrestricted public access” 499Durham, supra note 20, at 69. to (private) facilities. His prison design

enables the whole establishment to be inspected almost at a view, it would be my study to render it a spectacle, as persons of all classes would, in the way of amusement, be curious to partake of: and that not only on Sundays at the time of Divine service, but on ordinary days at meal times or times of work: providing therefore a system of inspection, universal, free, and gratuitous, the most effectual and permanent securities against abuse. 500Id. (quoting Jeremy Bentham, A Bentham Reader 200 (Mary Peter Mack ed., 1969)).

I don’t want to endorse watching prisoners as a source of amusement (and public access raises serious security and access-to-contraband issues), but the idea of at least some public access does seem to have some advantages in terms of accountability.

Conclusion

The failure of the comparative effectiveness studies, therefore, is completely understandable. Aside from the methodological problems, it’s quite plausible that the results of prison privatization have been inconclusive because the changes in prison management that would lead to better performance are often neither permitted nor rewarded.

Using performance measures would change this by helping us do valid comparative studies, enabling the fair public-private competitions that are a hallmark of competitive neutrality, and pushing policymakers to clearly formulate what we want out of prisons. Using performance measures directly to drive compensation has the potential to radically alter prison outcomes by rewarding good performance and penalizing bad performance; this definitely has applicability for private prisons but could possibly be used for public prison wardens as well.

The critiques are serious, but I don’t believe they undermine the experiment too seriously.

The information necessary to calculate the True Social Values in an efficiency framework may never be available, but we can approach the exercise with an air of humility, seeking only to improve incentives at the margins, not to achieve optimal social engineering.

The use of market incentives probably won’t alter the public-interestedness of those who work at private prison firms, but it might alter the mix of people who choose to work in the public sector; on the other hand, combined with social impact bonds, performance-based compensation can also spur the growth of nonprofit providers. Because small firms and nonprofits are particularly sensitive to risk, the incentives should only be moderately high-powered, to trade off incentives and risk tolerance.

Performance-based compensation will give rise to certain possibly undesirable strategic behavior. If providers can set their own goals, they’ll be inclined to set them in ways that are easy to meet; this is why providers shouldn’t set the goals at all, and in any event compensation should be based on the level of a continuous variable, not a binary goal. If some dimensions of quality are hard to measure, performance-based compensation will bias providers’ effort toward the more measurable aspects of performance; this means that some reliance on inputs and outputs will still be necessary, having due regard for the need to avoid choosing measures that can be easily and undesirably manipulated by providers. Compensation schemes might lead providers to concentrate on treating certain inmates and neglect others; even if this is bad (which isn’t clear), the problem can be alleviated by inmate-specific rewards. Finally, the levels of the measures themselves can be falsified, which points to the need for serious investments in monitoring and robust disclosure regimes.

These concerns are real, but the lesson to take from them is that more experimentation is required to see how much of a real-world effect they have and to what degree they really vitiate the promise of performance incentives. The status quo, where the level of experimentation is close to zero, is unlikely to be optimal.

Footnotes

Associate Professor, Emory Law School, avolokh@emory.edu. I am grateful to Michael J. Broyde, Russell C. Gabriel, Leonard Gilroy, Linda Hardyman, Erica J. Hashimoto, Peter H. Kyle, Christina Mulligan, Carl Nink, Usha Rodrigues, Joanna E. Saul, Sarah M. Shalf, Vladimir Volokh, and the participants at the Emory/UGA joint faculty colloquium for their input and assistance. I am also grateful to Kedar Bhatia and Julia Hueckel for their able research assistance, and to the law librarians at Emory Law School. Thanks also to the organizers and panelists of the Randolph W. Thrower Symposium, Privatization: Managing Liability and Reassessing Practices in Local and International Contexts, on February 7, 2013. A previous version of this Article was presented as the keynote address at the Vermont Law Review's symposium, Prison Privatization: Optimizing Our Use of a Privatized Resource, on March 23, 2013.

1Charles Dickens, Little Dorrit 517–18 (Oxford Univ. Press 1989) (1857).

2Env’t & Natural Res. Div., U.S. Dep’t of Justice, ENRD Accomplishments Report Fiscal Year 2012, at 8 (2013).

3Sharon Dolovich, How Privatization Thinks: The Case of Prisons, in Government by Contract: Outsourcing and American Democracy 128, 129 (Jody Freeman & Martha Minow eds., 2009).

4Not that her perspective is the same as mine, but we both agree that there’s still something left to say on the subject.

5Dolovich herself is wary of premature engagement with the comparative effectiveness debate without having sorted through the necessary normative issues beforehand. See Dolovich, supra note 3, at 128–29; Sharon Dolovich, State Punishment and Private Prisons, 55 Duke L.J. 437, 447 n.20 (2005).

6See generally Alexander Volokh, Privatization and the Elusive Employee–Contractor Distinction, 46 U.C. Davis L. Rev. 133 (2012).

7Gerald G. Gaes et al., Measuring Prison Performance: Government Privatization and Accountability 184 (2004).

8Id. at 123.

9These aren’t the only things we should know. For instance, we can also care about where accountability is greater, which sector might be more likely to push the substantive criminal law in a more pro-incarceration direction, and the like. See, e.g., Alexander Volokh, Privatization and the Law and Economics of Political Advocacy, 60 Stan. L. Rev. 1197, 1199–1205 (2008); Developments in the Law—The Law of Prisons, 115 Harv. L. Rev. 1838, 1868–91 (2002).

10See, e.g., Geoffrey F. Segal & Adrian T. Moore, Weighing the Watchmen: Evaluating the Costs and Benefits of Outsourcing Correctional Services, Part II: Reviewing the Literature on Cost and Quality Comparisons 15 (Reason Pub. Policy Inst., Policy Study No. 290, 2002); Samuel Jan Brakel & Kimberly Ingersoll Gaylord, Prison Privatization and Public Policy, in Changing the Guard: Private Prisons and the Control of Crime 125, 134–43 (Alexander Tabarrok ed., 2003).

11See, e.g., Dolovich, supra note 5, at 474–80.

12See, e.g., Philippe C. Schmitter, The “Organizational Development” of International Organizations, 25 Int’l Org. 917, 932 (1971) (calling this the “interocular impact test”).

13I first (briefly) advocated performance measures for prison accountability in my student note. See Developments in the Law—The Law of Prisons, supra note 9, at 1887–88; see also Francis T. Cullen et al., The Accountable Prison, 28 J. Contemp. Crim. Just. 77, 83 (2012) (“The core goal of the accountable prison is to reduce inmates’ recidivism.” (italics omitted)).

14See supra text accompanying note 1.

15See supra text accompanying note 2.

16Dickens, supra note 1, at 104–23.

17See Beryl A. Radin, Challenging the Performance Movement: Accountability, Complexity, and Democratic Values 15–16 (2006) (defining “input,” “output,” “outcome,” and other terms).

18See E. Ann Carson & William J. Sabol, U.S. Dep’t of Justice, Bureau of Justice Statistics, Bull. No. NCJ 239808, Prisoners in 2011, at 32 tbl.15 (2012) (listing Arkansas, Delaware, Illinois, Iowa, Maine, Massachusetts, Michigan, Minnesota, Missouri, Nebraska, Nevada, New Hampshire, New York, North Dakota, Oregon, Rhode Island, Utah, Washington, and West Virginia as states with no inmates in private prisons in 2011).

19One might think that the reversal rate is a measure of accuracy of adjudication. But this isn’t true because (1) the cases selected for appeal aren’t random (in the absence of some special process to verify accuracy), and (2) given deferential standards of review, judges can work to insulate their decisions from appellate review if they’re so inclined—for instance, by making them more intensely fact-based.

20See Alexis M. Durham III, Evaluating Privatized Correctional Institutions: Obstacles to Effective Assessment, Fed. Probation, June 1988, at 65, 67; Developments in the Law—The Law of Prisons, supra note 9, at 1873–74.

21See supra note 18 and accompanying text.

22Douglas McDonald et al., Private Prisons in the United States: An Assessment of Current Practice 33 (1998).

23See id. at 45 (making this claim about the Arizona facilities compared in Charles W. Thomas, Ariz. Dep’t. of Corr., Comparing the Cost and Performance of Public and Private Prisons in Arizona (1997)); see also Scott D. Camp & Gerald G. Gaes, Fed. Bureau of Prisons, Private Prisons in the United States, 1999: An Assessment of Growth, Performance, Custody Standards, and Training Requirements 15 (2000).

24See McDonald et al., supra note 22, at 34–35; see also Robert B. Levinson, Okeechobee: An Evaluation of Privatization in Corrections, Prison J., Oct. 1985, at 75, 77.

25Gerry Gaes, Cost, Performance Studies Look at Prison Privatization, Nat’l Inst. Just. J., Mar. 2008, at 32, 34; Douglas C. McDonald, The Costs of Operating Public and Private Correctional Facilities, in Private Prisons and the Public Interest 86, 101 (Douglas C. McDonald ed., 1990).

26U.S. Gov’t Accountability Office, GAO-08-6, Cost of Prisons: Bureau of Prisons Needs Better Data to Assess Alternatives for Acquiring Low and Minimum Security Facilities 4 (2007).

27Id. at 12–13.

28Id. at 5.

29Id. at 13.

30Id. at 7, 19, 30. The BOP’s view seems to have been chiefly based on the fact that it used private contractors to run facilities for criminal aliens and wasn’t expecting to receive funding to run its own. Id. The BOP also believed that the Taft cost study, see infra text accompanying notes 56–59, was already a sufficient cost study. U.S. Gov’t Accountability Office, supra note 26, at 7, 19, 21, 30.

31McDonald et al., supra note 22, at 33; accord McDonald, supra note 25, at 88–89, 97–100.

32McDonald et al., supra note 22, at 35.

33Id. at 36.

34See McDonald, supra note 25, at 106.

35McDonald et al., supra note 22, at 36–37.

36See Gerald G. Gaes, The Current Status of Prison Privatization Research on American Prisons 17–18 (Feb. 2012) (unpublished manuscript), http://works.bepress.com/gerald_gaes/1 (“Other complications arise from the appropriate treatment of property, sales, or income taxes paid by private contractors, as well as profits from inmate phone calls and commissary accounts.”); see also McDonald et al., supra note 22, at 37. Private companies are also loath to divulge their own financial details. See McDonald, supra note 25, at 89; see also Office of Program Policy Analysis & Gov’t Accountability, Fla. Legislature, Report No. 95-48, Performance Audit of the Gadsden Correctional Institution 2 (1996); Pub. Accounts Comm., Legislative Assembly, N.S.W. Parliament, Report No. 13/53 (No. 156),Value for Money from NSW Correctional Centres 23 (2005).

37McDonald, supra note 25, at 100.

38C. Elaine Cummins, Private Prisons in Texas, 1987–2000, at 15 (2000) (unpublished Ph.D. dissertation, American University) (on file with author).

39Id. at 42; see also Tex. Gov’t Code Ann. § 495.003(c)(4) (West 2012).

40Now absorbed into the Texas Department of Criminal Justice. See Tex. Dep’t of Criminal Justice, Agency Strategic Plan: Fiscal Years 2013–17, at 2 (2012).

41Cummins, supra note 38, at 155.

42503 F. Supp. 1265 (S.D. Tex. 1980) (requiring the Texas Department of Corrections to alleviate overcrowding, increase the number of guards and support staff, and provide adequate health services), aff’d in part, rev’d in part, 679 F.2d 1115 (5th Cir. 1982), amended in part, vacated in part, 688 F.2d 266 (5th Cir. 1982).

43See Cummins, supra note 38, at 156–57.

44Id. at 156 tbl.9.

45Id. at 158; see also Gaes et al., supra note 7, at 87–88. One facility received an extra $7.41 for an “intensive substance abuse treatment program.” Cummins, supra note 38, at 158.

46Office of Program Policy Analysis & Gov’t Accountability, Fla. Legislature, Report No. 97-68, Review of Bay Correctional Facility and Moore Haven Correctional Facility 9 (1998) [hereinafter OPPAGA].

47Id.

48Fla. Dep’t of Corr., 1996–97 Annual Report (1997), available at http://www.dc.state.fl.us/pub/annual/9697/budget.html. These estimates were analyzed in Fla. Dep’t of Corr., Privatization in the Florida Department of Corrections (1998). See Gaes et al., supra note 7, at 191 n.4.

49OPPAGA, supra note 46, at 55–61 (providing CCA’s comments with OPPAGA’s comments interspersed throughout).

50Id. at 57.

51Id. at 61.

52See id. at 59.

53Julianne Nelson, The CNA Corp., Competition in Corrections: Comparing Public and Private Sector Operations 10, 39 fig.4, 42 fig.5 (2005).

54Id. at 42 fig.5.

55See id. The study also compared actual GEO costs to hypothetical costs if Taft had been kept in-house. This comparison gave the edge to the public sector, id. at 25–26, but I don’t stress this result because it’s based on a comparison with a hypothetical public institution, not on actual public-sector costs.

56Douglas C. McDonald & Kenneth Carlson, Contracting for Imprisonment in the Federal Prison System: Cost and Performance of the Privately Operated Taft Correctional Institution (Oct. 1, 2005) (unpublished manuscript), https://www.ncjrs.gov/pdffiles1/nij/grants/211990.pdf.

57Id. at 48 tbl.2.18.

58Gaes, supra note 25, at 34.

59Id. at 34–35; Gaes, supra note 36, at 20.

60See McDonald et al., supra note 22, at 54–55 (discussing Arizona facilities compared in Thomas, supra note 23); see also Gerald G. Gaes et al., The Performance of Privately Operated Prisons: A Review of Research, in McDonald et al., supra note 22, app. 2, at 12 (discussing Arizona facilities compared in Thomas, supra note 23).

61See McDonald et al., supra note 22, at 55 (discussing Charles H. Logan, Well Kept: Comparing Quality of Confinement in Private and Public Prisons, 83 J. Crim. L. & Criminology 577 (1992)); see also Charles H. Logan, Well Kept: Comparing Quality of Confinement in a Public and a Private Prison (1991).

62See, e.g., Gaes et al., supra note 60, at 5 (criticizing the use of univariate methods in the comparison of Kentucky facilities in Urban Inst., Comparison of Privately and Publicly Operated Correctional Facilities in Kentucky and Massachusetts (1989)); id. at 18 (discussing the lack of information on characteristics of inmate populations in William G. Archambeault & Donald R. Deis, Jr., Cost Effectiveness Comparisons of Private Versus Public Prisons in Louisiana: A Comprehensive Analysis of Allen, Avoyelles, and Winn Correctional Centers (1996)); id. at 19 (discussing the lack of controls for differences in number of inmates at some comparison prisons in Archambeault & Deis, supra); see also, e.g., Gaes et al., supra note 7, at 51–53 (discussing Archambeault & Deis, supra); Scott D. Camp & Gerald G. Gaes, Private Adult Prisons: What Do We Really Know and Why Don’t We Know More?, in Privatization in Criminal Justice: Past, Present, and Future 283, 287 (David Shichor & Michael J. Gilbert eds., 2001) (critiquing Archambeault & Deis, supra, and Thomas, supra note 23).

63See Gaes et al., supra note 60, at 4 (discussing the comparison of Kentucky facilities in Urban Inst., supra note 62, where the public sector had a more difficult adult population while the private sector had a more difficult juvenile population); id. at 9 (discussing Tenn. Select Oversight Comm. on Corr., Comparative Evaluation of Privately-Managed Corrections Corporation of America Prison (South Central Correctional Center) and State-Managed Prototypical Prisons (Northeast Correctional Center, Northwest Correctional Center) (1995)); id. at 11 (discussing Robert C. Thomas et al., Legislative Budget Comm., State of Wash., Department of Corrections Privatization Feasibility Study (1996)); id. at 20 (criticizing the use of the Angola facility as a comparison facility in Archambeault & Deis, supra note 62); id. at 20–21 (discussing that low urinalysis hit rates in Archambeault & Deis, supra note 62, could indicate a population less inclined to use drugs, and low medical risk scores could indicate a population less in need of serious medical care).

64Thomas, supra note 23, at 73.

65Camp & Gaes, supra note 23, at 21–22 (noting some restrictions in effect in 62.5% of the contracts surveyed; special medical needs restrictions in 50% of contracts; and other restrictions, including those for high-publicity inmates and gang members).

66Thomas, supra note 23, at 73.

67See, e.g., Contract between the State of Tennessee and Corrections Corporation of America, RFS No.329.44-00408 § A.4.g.13)(a) (July 1, 2007), http://www.capitol.tn.gov/joint/committees/fiscal-review/archives/106ga/contracts/RFS%20329.44-00408%20Correction%20%28CCA%20-%20amendment%201%29.pdf [hereinafter Tennessee CCA 2007 contract] (“If the inmate is hospitalized, the Contractor shall not be responsible for Inpatient-Hospital Costs which exceed $4,000.00 per Inmate per admission.”); id. § A.4.g.13)(b) (“The Contractor shall not be responsible for the cost of providing anti-retroviral medications therapeutically indicated for the treatment of Inmates with AIDS or HIV infection.”). By its terms, this contract covers services at the South Central Correctional Center, id. § A.1.j, and runs from 2007 to 2010, id. § B.1.

68See, e.g., Notice of Request for Proposal, Ariz. Dep’t of Corr., 5000 Minimum/Medium Security Prison Beds, Solicitation No. 110054DC § 2.14.1 (Jan. 24, 2011) (on file with author) (“There is no medical cap per inmate, per year. The Contractor shall assume all health care related costs.”).

69Gaes et al., supra note 60, at 6 (discussing Dale K. Sechrest & David Shichor, Parole & Cmty. Servs. Div., Cal. Dep’t of Corr., Final Report: Exploratory Study of California’s Community Correctional Facilities (1994)).

70Gaes et al., supra note 60, at 24 (discussing staff surveys in Logan, supra note 61; Logan, supra note 61).

71See Gaes et al., supra note 7, at 74–76 (critiquing Judith Greene, Comparing Private and Public Prison Services and Programs in Minnesota: Findings from Prisoner Interviews, 11 Current Issues Crim. Just. 202 (1999); Judith Greene, Lack of Correctional Services, in Capitalist Punishment: Prison Privatization & Human Rights (Andrew Coyle et al. eds., 2003); Logan, supra note 61; Logan, supra note 61); see also Scott D. Camp et al., Quality of Prison Operations in the US Federal Sector: A Comparison with a Private Prison, 4 Punishment & Soc’y 27, 32–34 (2002) [hereinafter Camp et al., Quality of Prison Operations]. For a general discussion of methods, see Scott D. Camp et al., Creating Performance Measures from Survey Data: A Practical Discussion, Corrections Mgmt. Q., Winter 1999, at 71.

72See Richard W. Harding, Private Prisons and Public Accountability 115–19 (1997).

73See Camp et al., Quality of Prison Operations, supra note 71, at 49–50; Scott D. Camp et al., Using Inmate Survey Data in Assessing Prison Performance: A Case Study Comparing Private and Public Prisons, 27 Crim. Just. Rev. 26, 31 (2002); see also Gaes et al., supra note 7, at 83.

74Gaes et al., supra note 60, at 9 (discussing Tenn. Select Oversight Comm. on Corr., supra note 63).

75Not that prison audits are useless; Gerald Gaes, in fact, who is a big booster of performance measurement, discusses how audits could be improved to be made more useful. Gaes et al., supra note 7, at 31–37.

76See Gaes et al., supra note 60, at 20 (discussing, in the context of Archambeault & Deis, supra note 62, how a low count of disciplinary actions could indicate either good or bad performance); id. at 25–27 (discussing similar difficulties in interpreting items in Logan, supra note 61; Logan, supra note 61).

77Camp & Gaes, supra note 62, at 286 (internal quotation marks omitted).

78Gaes et al., supra note 60, at 31 (internal quotation marks omitted) (citing U.S. Gen. Accounting Office, GAO/GGD-96-158, Private and Public Prisons: Studies Comparing Operational Costs and/or Quality of Service 11 (1996)).

79See, e.g., Harding, supra note 72, at 158–65 (describing the “basic model” of accountability, the U.K. model, and the Florida model, and proposing a new model); David E. Pozen, Managing a Correctional Marketplace: Prison Privatization in the United States and the United Kingdom, 19 J.L. & Pol. 253, 276–81 (2003) (comparing American and British accountability systems).

80See Jon Vagg, Prison Systems: A Comparative Study of Accountability in England, France, Germany, and the Netherlands 305–07 (1994).

81See HCJ 2605/05 Academic Ctr. of Law & Bus., Human Rights Div. v. Minister of Fin. ¶ 18 [2009] (Isr.), available at http://elyon1.court.gov.il/files_eng/05/050/026/n39/05026050.n39.pdf; Volokh, supra note 6, at 180–85, 198–99 (discussing this opinion).

82Gaes, supra note 36, at 30, also calls for more study of different accountability structures.

83See supra text accompanying notes 53–57.

84McDonald & Carlson, supra note 56.

85Scott D. Camp & Dawn M. Daggett, U.S. Dep’t of Justice, Fed. Bureau of Prisons, Evaluation of the Taft Demonstration Project: Performance of a Private-Sector Prison and the BOP (2005), http://149.101.37.70/news/research_projects/published_reports/pub_vs_priv/orelappin2005.pdf.

86Nelson, supra note 53.

87McDonald & Carlson, supra note 56, at 119; see also infra text accompanying notes 305–06.

88Gaes, supra note 25, at 35; infra text accompanying note 172.

89McDonald & Carlson, supra note 56, at 119.

90Id. at 143.

91Id. at 126, 127 fig.4.2. To focus on the three comparison prisons from the cost analyses, Elkton’s assault rate was similar to what would have been expected, while Taft, like Forrest City and Yazoo City, had lower rates than what would have been expected. Gaes, supra note 25, at 36. Yazoo City’s was the lowest. Id.

92McDonald & Carlson, supra note 56, at 128.

93Id.

94Id. at 143.

95Camp & Daggett, supra note 85, at 35.

96Id. at 59–60.

97But see infra text accompanying notes 469–78 (discussing how misconduct rates can be misleading since they depend on accurate and unbiased reporting by prison staff).

98Gaes et al., supra note 60, at 31.

99Gaes, supra note 36, at 25–26 (citing Camp et al., Quality of Prison Operations, supra note 71; Scott D. Camp et al., The Influence of Prisons on Inmate Misconduct: A Multilevel Investigation, 20 Just. Q. 501 (2003); Camp et al., supra note 73).

100See Lonn Lanza-Kaduce et al., A Comparative Recidivism Analysis of Releasees from Private and Public Prisons, 45 Crime & Delinq. 28, 36–37 (1999) [hereinafter Lanza-Kaduce et al., A Comparative Recidivism Analysis]; see also Lonn Lanza-Kaduce et al., The Devil in the Details: The Case Against the Case Study of Private Prisons, Criminological Research, and Conflict of Interest, 46 Crime & Delinq. 92, 96–97 (2000).

101The critiques are discussed in Gaes et al., supra note 7, at 24–26. Gaes et al. argue, see id. at 27, that several of the critiques continue to apply to a later paper with a longer follow-up period, L. Lanza-Kaduce & S. Maggard, The Long-Term Recidivism of Public and Private Prisoners (2001) (unpublished manuscript) (paper presented at the National Conference of the Bureau of Justice Statistics and Justice Research and Statistics Association, New Orleans, 2001).

102 See Lanza-Kaduce et al., A Comparative Recidivism Analysis, supra note 100. The difference in rearrest rates is significant at the 1% level and the difference in resentencing rates is significant at the 5% level, but the differences in reincarceration rates and for any indication of recidivism are only significant at the 10% level. Id. at 37.

103Id. at 37–38.

104Id. at 38–41.

105Gaes et al., supra note 7, at 25 (citing Fla. Dep’t of Corr., Bur. of Res. & Data Analysis, Preliminary Assessment of a Study Entitled “A Comparative Recidivism Analysis of Releasees from Private and Public Prisons in Florida” (1998)).

106Id. at 26.

107Id.

108David Farabee & Kevin Knight, A Comparison of Public and Private Prisons in Florida: During- and Post-Prison Performance Indicators (2002).

109Gaes et al., supra note 7, at 27.

110Farabee & Knight, supra note 108, at ii–iii, 20–25.

111Gaes et al., supra note 7, at 28.

112William D. Bales et al., Recidivism of Public and Private State Prison Inmates in Florida, 4 Criminology & Pub. Pol’y 57 (2005).

113See Gaes, supra note 36, at 9.

114Bales et al., supra note 112, at 69, 72, 74.

115Andrew L. Spivak & Susan F. Sharp, Inmate Recidivism as a Measure of Private Prison Performance, 54 Crime & Delinq. 482, 500 tbl.5, 501 (2008).

116See id. at 503.

117See, e.g., Ariz. Dep’t of Corr., Revised FY 2009 Operating Per Capita Cost Report 2, 4 (2010) (discussing inmates “returned to state prisons due to an increase of their medical scores that exceeds contractual exclusions”); id. at 10 (explaining that “[m]edical, dental and mental health treatment is provided but to a healthier inmate population based upon contractual criteria resulting in lower overall medical costs”); id. at 12–16 (discussing medical, mental health, and other restrictions on inmates that can be sent to particular private prisons); Ariz. Office of the Auditor Gen., Report No. 10-08, Department of Corrections—Prison Population Growth 20 (2010) (“[P]rivate prisons do not accept inmates in need of more serious medical care . . . .”); Gaes et al., supra note 7, at 28; John J. DiIulio, Jr., The Duty to Govern: A Critical Perspective on the Private Management of Prisons and Jails, in Private Prisons and the Public Interest, supra note 25, at 155, 166–67 (stating that private firms “engage in correctional creaming when they bid,” meaning that they avoid bidding on facilities that they expect will “bring negative media attention, legislative inquiries, staff unrest, lawsuits, and judicial intervention”—that is, “the Atticas and Rikers Islands of the country”); Dolovich, supra note 5, at 505; Richard A. Oppel, Jr., Private Prisons Found to Offer Little in Savings, N.Y. Times, May 19, 2011, at A1 (discussing Arizona Department of Corrections study stating that private prisons “often house only relatively healthy inmates” and quoting State Representative Chad Campbell calling this practice “cherry-picking”). But see Gaes et al., supra note 60, at 34–35 (stressing that the federal Taft facility, the subject of the comparative study reported supra text accompanying notes 53–59, 83–94, will house inmates equivalent to those at the comparison facilities).

118Thomas, supra note 23, at 73; see supra text accompanying note 64.

119Spivak & Sharp, supra note 115, at 503–04.

120See U.S. Gen. Accounting Office, supra note 78, at 29–31 (discussing Sechrest & Shichor, supra note 69) (“Sufficient data were not available to adequately complete the analysis comparing the inmates released from the community correctional facilities to inmates released from other correctional institutions in the state.”); Michael D. Maltz, Recidivism 58–60 (1984); Gaes et al., supra note 60, at 7.

121See Brakel & Gaylord, supra note 10, at 154.

122Maltz, supra note 120, at 62; see Ass’n of State Corr. Adm’rs, ASCA Performance-Based Measures System Counting Rules 15–24 (2013), available at http://www.asca.net/system/assets/attachments/5685/PBMS%20KeyIndicators%204_3_13.pdf.

123Maltz, supra note 120, at 63; see also James Dicker, 2020 Pub. Servs. Trust at the RSA, Case Study 2, Payment-by-Outcome in Offender Management 16 (2011) (“[N]either reconviction nor re-imprisonment rates capture all re-offending behaviour, as only about 45% of offenders who are reconvicted are incarcerated and it is possible to be recalled to prison for breaching license conditions without being reconvicted.”).

124See Dicker, supra note 123, at 18.

125Id. at 16–17.

126See Maltz, supra note 120, at 66–67.

127See Gaes, supra note 36, at 9–11 (discussing these studies).

128Some studies are actually meta-analyses. See Gaes, supra note 36, at 3–6 (discussing meta-analyses and literature reviews). Two recent meta-analyses showed little difference between the public and private sectors. One, only analyzing costs, found no statistical difference between the public and private sectors. See Travis C. Pratt & Jeff Maahs, Are Private Prisons More Cost-Effective Than Public Prisons? A Meta-Analysis of Evaluation Research Studies, 45 Crime & Delinq. 358, 365, 366 tbl.2 (1999). Another, looking at both cost and quality, found that the private sector was both slightly cheaper and slightly worse; but with such small effects, the authors concluded that “prison privatization provides neither a clear advantage nor disadvantage.” See Brad W. Lundahl et al., Prison Privatization: A Meta-Analysis of Cost and Quality of Confinement Indicators, 19 Res. on Soc. Work Prac. 383, 392 (2009). A third—more a literature review than a meta-analysis—reported that the comparison was “inconclusive,” 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, 301 (2003); and in any event there was no formal attempt to control for differences between the public and private prisons compared. See id. at 306.Given that many of the underlying studies are flawed in various ways, it’s not clear how you do better by aggregating them. When studies done in vastly different ways and subject to different sources of bias are aggregated in a meta-analysis, the results are “garbage in, garbage out.”

129See U.S. Gen. Accounting Office, supra note 78, at 13; see also Simon Hakim & Erwin A. Blackstone, Cost Analysis of Public and Contractor-Operated Prisons 4, 11 (Apr. 29, 2013) (unpublished working paper) (finding long-run cost savings between 12% and 59% but devoting scarcely any attention to quality).

130See, e.g., Dolovich, supra note 5, at 474–80 (discussing the economic incentives inherent to private prison management for saving money by reducing overall quality of service).

131See McDonald et al., supra note 22, at 34–35; Developments in the Law—The Law of Prisons, supra note 9, at 1875–78.

132See McDonald, supra note 25, at 91.

133Cf. Caroline M. Hoxby, School Choice and School Competition: Evidence from the United States, Swedish Econ. Pol’y Rev., no. 2, 2003, at 9, 42 (“If school choice is to be public policy, and not merely an experiment, then the question we need to answer is whether students’ achievement would rise if they attended voucher or charter schools that had resources like those available to them in regular public schools. In other words, we should ask the achievement question, holding resources constant (as well as holding students’ ability, motivation, and other characteristics constant).”).

134See U.S. Gov’t Accountability Office, supra note 26, at 5, 13–14, 17, 19–20, 30.

135See supra text accompanying notes 117–19.

136See Office of Program Policy Analysis & Gov’t Accountability, State of Fla., Report No. 95-12, Review of Correctional Privatization 4 (1995) (recommending restrictions on transfers out of private prisons).

137Cf. Hoxby, supra note 133, at 19 (noting that “[school] choice can affect productivity through a variety of long-term, general equilibrium mechanisms that are not immediately available to an administrator,” like bidding up the wages of successful teachers and altering the mix of people who choose teaching as a career, making parents into more informed consumers by encouraging the spread of information about schools, altering what curricula are adopted, and the like).

138See Charles W. Thomas, Correctional Privatization in America: An Assessment of Its Historical Origins, Present Status, and Future Prospects, in Changing the Guard, supra note 10, at 57, 59; see also infra Part II.A (discussing how privatization can improve accountability of the public sector).

139Cf. Hoxby, supra note 133, at 43 (suggesting that concentrating on the effect on student achievement of private schooling vs. public schooling is wrongheaded in the school choice debate because school choice can be a success if, through competition, it leads to improvements in the public sector, so that there never emerges any difference between public and private school outcomes).

140See James F. Blumstein et al., Do Government Agencies Respond to Market Pressures? Evidence from Private Prisons, 15 Va. J. Soc. Pol’y & L. 446, 454 (2008); see also James F. Blumstein & Mark A. Cohen, The Interrelationship Between Public and Private Prisons: Does the Existence of Prisoners Under Private Management Affect the Rate of Growth in Expenditures on Prisoners Under Public Management? 1 (2003) (concluding that “states that have some of their prisoners in privately owned or operated prisons experience lower growth in the cost of housing their public prisoners”).

141See Blumstein et al., supra note 140, at 465 (finding an insignificant effect with two different specifications but a significant effect with a third).

142The authors estimate the effect using a two-stage regression where the first stage represents the probability of privatizing, but this method doesn’t always take care of selection effects. See Alexander Volokh, Do Faith-Based Prisons Work?, 63 Ala. L. Rev. 43, 67–73 (2011). Gaes also critiques the study. See Gaes, supra note 36, at 12–14. I have discussed or critiqued selection bias in many places. See Alexander Volokh, Choosing Interpretive Methods: A Positive Theory of Judges and Everyone Else, 83 N.Y.U. L. Rev. 769, 803–19 (2008); Volokh, supra note 9, at 1245–47; Alexander Volokh, Privatization, Free Riding, and Industry-Expanding Lobbying, 30 Int’l Rev. L. & Econ. 62, 68 (2010) [hereinafter Volokh, Privatization, Free Riding]; Alexander Volokh, The Effect of Privatization on Public and Private Prison Lobbies, in 3 Prison Privatization: The Many Facets of a Controversial Industry 7, 24–26 (Byron Eugene Price & John Charles Morris eds., 2012) [hereinafter Volokh, The Effect of Privatization].

143Developments in the Law—The Law of Prisons, supra note 9, at 1875.

144I discuss cross-fertilization at greater length below. See infra text accompanying note 194.

145Richard Harding, Private Prisons, in 28 Crime and Justice: A Review of Research 265, 334 (2001). But see Tony Ward, Book Review, 3 Theoretical Criminology 125, 126 (1999) (reviewing Harding, supra note 72) (conceding that Harding’s cross-fertilization argument is valid but noting that “[t]here seems to be a ‘heads I win, tails you lose’ quality to [Harding’s cross-fertilization] argument (if public prisons turn out to be better than private ones, that just proves that competition is good for them!)”).

146See Gaes et al., supra note 7, at 108; Harding, supra note 72, at 138 (noting that reductions in public prisons’ staffing levels in response to competition could be alternatively characterized as “cross-fertilization” or “industrial blackmail” (internal quotation marks omitted)); Gerald G. Gaes, Reaction Essay, Prison Privatization in Florida: Promise, Premise, and Performance, 4 Criminology & Pub. Pol’y 83, 87 (2005).

147See Dolovich, supra note 5, at 442.

148See Volokh, supra note 6, at 142–43 & n.30 (collecting sources making this argument).

149See also Alexander Volokh, The Modest Effect of Minneci v. Pollard on Inmate Litigants, 46 Akron L. Rev. 287, 324 (2013).

150See supra text accompanying notes 10–11.

151See supra note 12.

152See supra text accompanying notes 53–57.

153See, e.g., Camp & Gaes, supra note 62, at 287 (“In most of the literature in favor of privatization, . . . little or no detail is offered as to how . . . market pressures actually translate into real differences between public and private prisons . . . .”); Scott D. Camp, Editorial Introduction to Colloquy, Private Prisons & Recidivism, 4 Criminology & Pub. Pol’y 55, 55 (2005) (stating that “little specific information is provided about why” private prison releasees should have lower recidivism); Dolovich, supra note 5, at 476 (noting that “[t]here is . . . little evidence of cost-saving innovation in private-sector prisons”).

154Thomas, supra note 138, at 64; see also id. at 82, 100–02, 116 n.15.

155See McDonald et al., supra note 22, at 49; Durham, supra note 20, at 67; Gaes et al., supra note 60, at 12 (“Generally speaking, the contract [discussed in Thomas, supra note 23] stipulates that [the private provider] run the . . . facility in a manner similar to that in which the state would have operated the prison.”); id. at 17 (“Basically, the State of Arizona has taken the position that a private contractor should be given the opportunity to demonstrate it can [outperform] the state in running an Arizona prison according to Arizona Department of Corrections policy.”); Harding, supra note 145, at 303; Douglas McDonald & Carl Patten, Jr., Governments’ Management of Private Prisons 18 (Sept. 15, 2003) (unpublished manuscript), https://www.ncjrs.gov/pdffiles1/nij/grants/203968.pdf.

156Levinson, supra note 24, at 87; see also id. at 88 (noting that “close, coordinated monitoring of the contract by the state” may be precluded by “vague or nonexistent contract goals”).

157Debra K. Davenport, Ariz. Office of the Auditor Gen., Report No. 01-13, Arizona Department of Corrections: Private Prisons 9 (2001); see also Thomas, supra note 138, at 101.

158Gaes et al., supra note 60, at 10.

159Camp & Gaes, supra note 23, at vii (“[P]rivate contractors were typically obligated to use the training standards and policies of the public agencies.”); see also id. at 28. But see id. at ix (“[T]he private sector, even when there is no contractual obligation, has adopted the standards and policies of their public sector counterparts.”); see also id. at 32.

160Id. at x, 32–33; see also Harding, supra note 72, at 161.

161Camp & Gaes, supra note 23, at x; see also Harding, supra note 145, at 303–04 (noting a similar situation in Western Australia).

162Harding, supra note 72, at 67–68 (internal quotation marks omitted); see also Peter H. Kyle, Note, Contracting for Performance: Restructuring the Private Prison Market, 54 Wm. & Mary L. Rev. 2087, 2111 (2013) (“[S]ome states have started to require the provision of vocational services . . . .”). Harding does not distinguish between outputs and outcomes, see supra text accompanying note 17, so when he refers to outputs here, he means something like outcomes. Harding also suggests “intermediate outputs” as a synonym for “output-driven inputs,” Harding, supra note72, at 67–68 (internal quotation marks omitted); perhaps this concept is close to what I refer to as simply “outputs.” See Radin, supra note 17, at 15 (defining “output” and “intermediate outcome” differently).

163See Leonard Gilroy, Innovators in Action 2012: Creating a Culture of Competition to Improve Corrections, Reason Found. (May 31, 2012), http://reason.org/news/show/1012923.html.

164Pub. L. No. 97-300, § 106(b)(1), 96 Stat. 1322, 1333, repealed by Workforce Investment Act of 1998, Pub. L. No. 105-220, § 199(b)(2), 112 Stat. 936, 1059 (providing that permissible performance measures for job-training organizations include “(A) placement in unsubsidized employment, (B) retention in unsubsidized employment, (C) the increase in earnings, including hourly wages, and (D) reduction in the number of individuals and families receiving cash welfare payments and the amounts of such payments”).

165Pub. L. No. 103-62, 107 Stat. 285 (codified as amended in scattered sections of 5 and 31 U.S.C.); see Laurence E. Lynn, Jr., Requiring Bureaucracies to Perform: What Have We Learned from the U.S. Government Performance and Results Act (GPRA)?, Politiques et Mgmt. Pub., June 1999, at 1, 3; Matthew S. Schoen, Note, Good Enough for Government Work?: The Government Performance Results Act of 1993 and Its Impact on Federal Agencies, 32 Seton Hall Legis. J. 455, 467 (2008).

166See infra Part III.C.1.

167See, e.g., Tennessee CCA 2007 contract, supra note 67, § A.4.x.2 (“In the event of an escape resulting in whole or part from Contractor’s failure to perform pursuant to the provisions of this Contract, the State may seek damages in a court of competent jurisdiction.”). Note that there’s no provision for paying for escapes not stemming from nonperformance—the contractor need only “exercise its best efforts to prevent escapes.” See id. § A.4.x.1.

168See Kenneth L. Avio, The Economics of Prisons, 6 Eur. J.L. & Econ. 143, 150 (1998); Pozen, supra note 79, at 282–83; Thomas, supra note 138, at 107 (“[I]f there are contracts that include product-oriented requirements that go beyond mere evidence of participation, then they are contracts I have never read.”).

169Thomas, supra note 138, at 109.

170See Unique Private Prison Deal Leads to Backlash, Correctional News (Mar. 6, 2013), http://www.correctionalnews.com/articles/2013/03/6/unique-private-prison-deal-leads-backlash.

171See Durham, supra note 20, at 67.

172See McDonald et al., supra note 22, at 52. “Wackenhut Corrections Corp. changed its name to The GEO Group in November 2003 under the terms of a share purchase agreement with another company.” Volokh, supra note 9, at 1229 n.131.

173S.B. 2038, 2012 Leg., Reg. Sess. (Fla. 2012), available at http://flsenate.gov/Session/Bill/2012/2038/BillText/e1/PDF.

174Id. sec. 1, § 944.7115(8)(f)(1)(a)–(r).

175Id. sec. 1, § 944.7115(11).

176These were “(a) The percent of employment of supervised individuals; (b) The illegal substance use by supervised individuals; (c) The victim restitution paid by supervised individuals; (d) Compliance by supervised individuals with no-contact orders; (e) The number of serious incidents occurring at the facility; and (f) The number of absconders.” Id. sec. 1, § 944.7115(8)(f)(2)(a)–(f).

177See infra Part II.D.

178See supra Part I.A.

179See supra note 18 and accompanying text.

180See Aloysius Bavon, Innovations in Performance Measurement Systems: A Comparative Perspective, 18 Int’l J. Pub. Admin. 491, 493, 502 (1995) (discussing how performance measurement arose as a result of the perceived inefficiency of the public sector); Marc Holzer & Arie Halachmi, Measurement as a Means of Accountability, 19 Int’l J. Pub. Admin. 1921, 1922 (1996) (arguing that measurement improves accountability of the public sector).

181See Harding, supra note 72, at 158 (“The state must in the last resort be able to reclaim private prisons.”); Michael J. Gilbert, How Much Is Too Much Privatization in Criminal Justice?, in Privatization in Criminal Justice, supra note 62, at 41, 76–77.

182Volokh, supra note 9, at 1237–38.

183See William D. Eggers, Reason Pub. Pol’y Inst., How-to Guide No. 18, Competitive Neutrality: Ensuring a Level Playing Field in Managed Competitions 6 (1998); Gaes, supra note 36, at 24.

184Patrick Anderson et al., Private Corrections: Feast or Fiasco?, Prison J., Oct. 1985, at 32, 38.

185See Jacob S. Hacker, The Case for Public Plan Choice in National Health Reform: Key to Cost Control and Quality Coverage 1–2 (2008), http://ourfuture.org/report/case-public-plan-choice-national-health-reform; see also William A. Niskanen, Jr., Bureaucracy and Representative Government 217 (1971) (“In the 1930’s, the primary case for the creation of public power authorities was to provide a ‘yardstick’ with which to evaluate private electric utility monopolies.”).

186Gilroy, supra note 163.

187Id.

188Id.

189See id. (“[I]n the [request for proposals], . . . . we replicated the post assignments and the staffing pattern and the policies and the food requirements. We basically said, ‘you must identify a minimum of a 5 percent savings’ from exactly the cost of what it has cost us to operate North Central.”); see also id. (noting that “it was the same process” with Lake Erie Correctional Institution).

190Ohio actually has performance metrics, which are a combination of output and outcome measures, covering “everything from violence indicators, to use of force indicators, to program completion indicators (GED, etc.), to recidivism data.” Id. But they apparently weren’t used in the way described above.

191See supra Part I.A.1.

192See Eggers, supra note 183, at 1, 8–11.

193See Thomas, supra note 138, at 81, 86 (“I am aware of no example in the United States that reveals fair competition between public and private providers of correctional services. Until both of those policy failures are corrected, achieving many of the potential benefits of privatization will be impossible.”); cf. Harding, supra note 145, at 334 (explaining that such competition is also rare in Australia and the U.K.).

194Harding, supra note 72, at 115; accord id. at 162; Developments in the Law—The Law of Prisons, supra note 9, at 1890–91; Gilroy, supra note 163.

195Joanna Saul, Executive Director of Ohio’s Correction Institution Inspection Committee, takes a different view, stating that churningwould actually be horrific in practical application. The transition of prisons from public to private has been very difficult, with negative effects up to a year or more later. Private personnel have been very confused (or just ignorant) about the implementation of Ohio policies, which resulted in the really bad audit that they had at Lake Erie in Nov[ember]/Dec[ember] 2012. Further, the displacement of the public employees to other prisons caused a negative ripple effect across the system that will continue far into the future [because] people lost their seniority [and] the positions they had worked for, they came from different prison cultures, etc.Comments on a draft of this Article from Joanna Saul, Exec. Dir., Ohio Corr. Inst. Inspection Comm., to Alexander Volokh, Assoc. Professor, Emory Law School (Aug. 31, 2013). Perhaps Harding’s pro-churning and Saul’s anti-churning views can be reconciled: too much churning may be more trouble than it’s worth, since one will always incur transition costs when transferring a prison to new management. But the knowledge that churning might happen—that is, that a company could lose the contract to operate a prison—can exert beneficial competitive pressure.

196Harding, supra note 72, at 22–23.

197See Harding, supra note 145, at 272–73, 331–36.

198There remains the fear that, instead of systemwide improvement through cross-fertilization, we’ll get a race to the bottom, as Gaes worries. See supra text accompanying note 146. But good performance measures help avoid that problem.

199See Dicker, supra note 123, at 6 (“[P]ayment-by-outcome . . . compels commissioners to state explicitly the goals of policy.”).

200Vagg, supra note 80, at 307.

201See, e.g., G. Geltner, The Medieval Prison: A Social History (2008); Ralph B. Pugh, Imprisonment in Medieval England (1968); Edward M. Peters, Prison Before the Prison: The Ancient and Medieval Worlds, in The Oxford History of the Prison: The Practice of Punishment in Western Society 3 (Norval Morris & David J. Rothman eds., 1995).

202See Gaes et al., supra note 7, at xi, 153, 180; Harding, supra note 72, at 22; cf. Niskanen, supra note 185, at 217 (“[T]he case for the private supply of some public services is . . . to provide a yardstick to evaluate the performance of budget-maximizing monopoly bureaus.”).

203See supra text accompanying note 172.

204Also, in Kansas, Senate Bill 14 rewards community corrections agencies for reductions in recidivism beyond a set target. See S.B. 14, 2007 Leg., Reg. Sess. (Kan. 2007); Conservative Party, Policy Green Paper No. 4, Prisons with a Purpose: Our Sentencing and Rehabilitation Revolution to Break the Cycle of Crime 74 (2008); Cullen et al., supra note 13, at 90 (listing Washington’s performance-based evaluation of treatment programs; Arizona’s Senate Bill 1476, which provides for performance-based compensation of probation departments; and other programs in California, Colorado, Illinois, and South Carolina).

205Dicker, supra note 123, at 6.

206See Conservative Party, supra note 204, at 49, 72–75.

207See Ministry of Justice, Breaking the Cycle: Effective Punishment, Rehabilitation and Sentencing of Offenders, 2010, Cm. 7972, at 38–39 (U.K.).

208See Dicker, supra note 123, at 13.

209See Wesley Johnson, Payment-by-Results Project Bid to Cut Reoffending, Independent (Oct. 11, 2011), http://www.independent.co.uk/news/uk/crime/paymentbyresults-project-bid-to-cut-reoffending-2368793.html; John Biggin, Innovative Rehabilitation—Payment by Results at Doncaster Prison, GOV.UK (Oct. 13, 2011), https://www.gov.uk/government/news/innovative-rehabilitation-payment-by-results-at-doncaster-prison.

210Joe Inwood, State-Run Leeds Prison to Be Paid on Results, BBC News (Oct. 27, 2011), http://www.bbc.co.uk/news/uk-england-leeds-15479570. Leeds Prison is also called Armley. Id.

211Id.

212See Dicker, supra note 123, at 13, 30 n.29.

213Id. at 13. At Doncaster, payments start when the reduction is 5%. Biggin, supra note 209.

214Dicker, supra note 123, at 13.

215There’s also a twenty-four-hour help line. Johnson, supra note 209; Biggin, supra note 209.

216Chris Nicholson, Rehabilitation Works: Ensuring Payment by Results Cuts Reoffending 5 (2011); see also id. at 21–24 (discussing the experience with payment-by-results in the welfare to work context, characterizing the “Pathways to Work” program as unsuccessful and the “Employment Zones” program as reasonably successful).

217Dicker, supra note 123, at 13.

218Id. at 14.

219Id.

220Id.

221Dolovich, supra note 5, at 474; see also Tennessee CCA 2007 contract, supra note 67, § C.3 (laying out schedule of per diems).

222See Kenneth L. Avio, On Private Prisons: An Economic Analysis of the Model Contract and Model Statute for Private Incarceration, 17 New Eng. J. on Crim. & Civ. Confinement 265, 294–95 (1991); Daniel L. Low, Nonprofit Private Prisons: The Next Generation of Prison Management, 29 New Eng. J. on Crim. & Civ. Confinement 1, 46 (2003); Kyle, supra note 162, at 2111–12; Gaes, supra note 36, at 23 (citing Gaes et al., supra note 7).

223Durham suggests that “process-oriented monitoring methods” continue to be used: “[A] system of frequent accounting of staffing levels can detect shortfalls in staffing that may lead to a diminution in service provision. . . . If the change in staffing levels is detected relatively quickly, efforts can be made to either restore institutional staff to initial levels or to alter the evaluation design.” Durham, supra note 20, at 66; see also Dicker, supra note 123, at 16 (suggesting intermediate outcomes such as drug misuse, stability of relationships, or becoming debt-free); Sidney A. Shapiro & Rena Steinzor, Capture, Accountability, and Regulatory Metrics, 86 Tex. L. Rev. 1741, 1775, 1779 (2008); cf. U.S. Gen. Accounting Office, GAO/T-GGD-97-151, Performance-Based Organizations: Lessons from the British Next Steps Initiative 7 (1997) (discussing why measuring inputs may be necessary in the context of British Next Steps agencies); Shapiro & Steinzor, supra, at 1779 (discussing why measuring inputs may be necessary in the context of the EPA and GPRA).

224See McDonald et al., supra note 22, at 49 (“Correctional administrators . . . reported that 57 of the contracts in force at the end of 1997 required that facilities achieve ACA accreditation within a specified time.”).

225See Kyle, supra note 162, at 2112–13.

226Low, supra note 222, at 46; see also infra Part III.C.3.

227The same charge can also be leveled against the public sector, where incentives generally aren’t strong. Currently, private prisons do invest in rehabilitative inputs as required by their contracts—something that isn’t always required in the public sector.

228See Avio, supra note 168, at 150; Pozen, supra note 79, at 283–84; James Theodore Gentry, Note, The Panopticon Revisited: The Problem of Monitoring Private Prisons, 96 Yale L.J. 353, 362–63 (1986).

229See Conservative Party, supra note 204, at 73–74 (describing Avon Park Youth Academy in Florida as “a prison rewarded by results,” even though its only reward was having its contract renewed, “a decision clearly influenced” by its lower recidivism results); Dicker, supra note 123, at 25.

230Burt S. Barnow, The Effects of Performance Standards on State and Local Programs, in Evaluating Welfare and Training Programs 277, 286 (Charles F. Manski & Irwin Garfinkel eds., 1992).

231Pozen, supra note 79, at 283; accord Cullen et al., supra note 13, at 86.

232See Barnow, supra note 230, at 286.

233See Thomas, supra note 138, at 108–09.

234This is taking into account the incentive effects of the $1-per-unit reward. Perhaps earlier, with fixed-price contracts, Acme only achieved, say, a quality level of 3 at a total cost of $32.

235I discuss auction-theoretic considerations like the winner’s curse at infra text accompanying note 256.

236See Gentry, supra note 228, at 363.

237See also infra text accompanying notes 256–57.

238Here, I’m abstracting away from behavioral factors that might make rewards more attractive than punishments. See Cass R. Sunstein, Introduction to Behavioral Law and Economics 1, 5 (Cass R. Sunstein ed., 2000); Christine Jolls et al., A Behavioral Approach to Law and Economics, in Behavioral Law and Economics, supra at 30–31; see also Cullen et al., supra note 13, at 85 (“[U]nless a manager is truly oppositional and incompetent, we would not favor the use of negative sanctions—sticks—to coerce compliance with efforts to reduce recidivism. In the long run, such meanness would risk creating collective defiance and a failed reform.”).

239See infra text accompanying note 392.

240See, e.g., Dicker, supra note 123, at 20 & fig.2 (discussing use of “performance of control groups” or a whole range of control methods); Gaes et al., supra note 7, at 159 (citing Carolyn J. Heinrich, Outcomes-Based Performance Management in the Public Sector: Implications for Government Accountability and Effectiveness, 62 Pub. Admin. Rev. 712 (2002) (questioning, as characterized by Gaes, “whether outcome measures in the absence of a control or comparison group can provide meaningful information” in the context of the Job Training Partnership Act)); Barnow, supra note 230, at 281 (“[P]erformance management systems [could] measure outcomes relative to [a] standard. . . . [that is] set to take into account what would have occurred in the absence of the program . . . .”); Kyle, supra note 162, at 2112 (controlling for “age, prior criminal history, and sex”); id. at 2113 & n.136 (controlling for crime rates).

241Gloria A. Grizzle et al., Basic Issues in Corrections Performance 4 (1982).

242See id. at 91.

243See infra Part II.D.

244See Grizzle et al., supra note 241, at 91.

245Gaes et al., supra note 7, at 7.

246Id.

247Id. at 142 tbl.10.1.

248See id. at 141.

249See id. at 144 (discussing differences with Logan model); see also id. at 4 (suggesting “develop[ing] an expected rate of crime for a community or an expected rate of misconduct for a prison based on characteristics of the people and inmates”).

250See id. at 38.

251See supra text accompanying notes 234–35

252Gentry, supra note 228, at 362 n.52 (alterations in original) (quoting 1 Jeremy Bentham, Panopticon 71–73 (Dublin 1791)).

253See Gaes et al., supra note 7, at 144 (discussing concern with rank-ordering institutions).

254Recall that it didn’t in the reasoning establishing the equivalence of reward and penalty contracts. See supra Part II.C.2.b.

255Without controlling for baselines, the winning contractor gets a contract price of P and a performance-based reward R, bears costs of C, and his payoff is P + R – C; the variance of the payoff is var(R) + var(C) if R and C are independent. Now let’s control for baselines; for simplicity, assume this just involves subtracting an adjustment A from the reward, where A is determined by the expected baseline level of performance. The contract price becomes P', and the contractor’s new payoff is P' + R – A – C. If A has no randomness—everyone knows the government’s formula and everyone knows the underlying data that the government is plugging into the formula—then var(A) = 0 and the variance of the new payoff is the same var(R) + var(C). But if the data or the formula is somewhat uncertain, var(A) is positive, so the variance of the new payoff is var(R) + var(A) + var(C) if R, A, and C are independent, which is greater.This doesn’t necessarily have to happen. Suppose, for instance, that R, A, and C aren’t independent, but instead there’s some negative covariance among R, A, and C. Then the randomness of A might cancel out some of the randomness of R and C, and the adjustment can indeed reduce risk. The point in the text, though, is that this needn’t be the case, and the adjustment, though often defended as a risk-reducing move for contractors, could end up doing the opposite.

256See, e.g., Patrick Bolton & Mathias Dewatripont, Contract Theory 283–85 (2005).

257See Jody Freeman, The Private Role in Public Governance, 75 N.Y.U. L. Rev. 543, 574 (2000); Robert W. Poole, Jr., Privatization, in Concise Encyclopedia of Economics (2008), available at http://www.econlib.org/library/Enc/Privatization.html; Mary Sigler, Private Prisons, Public Functions, and the Meaning of Punishment, 38 Fla. St. U. L. Rev. 149, 155 (2010). See generally Oliver Hart, Firms, Contracts, and Financial Structure (1995) (discussing opportunistic behavior in contract relationships).

258Well, the example as worded involved discrete jumps, but one can easily imagine the prorated version. The “continuous” scheme is also called a “distance travelled” scheme. Dicker, supra note 123, at 16 (internal quotation marks omitted); see infra text accompanying notes 422–25, 436.

259See Harding, supra note 72, at 68 (“x per cent of participants [in a remedial literacy class] reaching attainment level y in z months.”).

260See Dicker, supra note 123, at 19 (explaining that a continuous measure “may incentivise providers to engage with high-risk offenders who are unlikely to achieve absolute desistance”); Harding, supra note 72, at 68.

261On the other hand, incentives are very large for those who could be just under the cutoff but could also reach the cutoff; but even then, unless the cutoff is a magical point, it’s probably more socially optimal to provide continuous incentives.

262Kyle also notes the following advantage of a sliding scale: it “would reduce the likelihood that private companies would receive an undeserved windfall—the farther in standard deviations from the mean the private prison is, the more likely a causal relationship that should be rewarded exists.” Kyle, supra note 162, at 2112. More accurately, this depends on the likely effect of rehabilitative measures versus the likely magnitude of unobserved factors: it could be that a truly exceptional performance in fact reflects an unusually (and unobservedly) good or rehabilitable crop of inmates.

263See infra Part III.B.2. Some also mention the possibility that the public could see the continuous measure as being “too lenient.” See, e.g., Dicker, supra note 123, at 20.

264See Dicker, supra note 123, at 24 (“[C]reate a minimum threshold of achievement that providers must attain before payments commence.”); id. at 25 (discussing a “target accelerator,” where increases are rewarded at an increasing rate).

265See supra note 213 and accompanying text.

266See infra Part III.B.2.

267See Tennessee CCA 2007 contract, supra note 67, § D.3 (“The State may terminate this Contract without cause for any reason.”); id. § D.4 (“If the Contractor fails to properly perform its obligations under this Contract in a timely or proper manner, or if the Contractor violates any terms of this Contract, the State shall have the right to immediately terminate the Contract and withhold payments in excess of fair compensation for completed services.”).

268See Dolovich, supra note 5, at 495–500; Developments in the Law—The Law of Prisons, supra note 9, at 1883–84.

269See supra text accompanying note 181.

270See Levinson, supra note 24, at 90 (discussing the “possibility of [a] contractor’s bankruptcy which would require rapid, costly interim arrangements”).

271See Cullen et al., supra note 13, at 84; Rick Hills, Merit Pay for Prison Wardens?, PrawfsBlawg (Mar. 3, 2008), http://prawfsblawg.blogs.com/prawfsblawg/2008/03/tying-the-salar.html.

272See supra text accompanying notes 210.

273See supra text accompanying notes 183–97.

274John D. Donahue, The Privatization Decision: Public Ends, Private Means 82 (1989) (italics omitted).

275See Niskanen, supra note 185, at 201–09; Barnow, supra note 230, at 307–08; Lynn, supra note 165, at 11; cf. David N. Figlio & Lawrence W. Kenny, Individual Teacher Incentives and Student Performance, 91 J. Pub. Econ. 901, 903 (2007) (examining effects of teacher merit pay).

276See Jon D. Michaels, Privatization’s Progeny, 101 Geo. L.J. 1023, 1048 & nn.124–25, 1049 (2013).

277See Thomas, supra note 138, at 109.

278Compare Harding, supra note 145, at 304 (“The financial incentive should drive performance in a way that is impossible in the state-funded public sector.”), and McDonald & Patten, supra note 155, at xxvii (“When structuring contracts, [governments] also have opportunities to create incentives and mechanisms for accountability that are more difficult to implement in existing public organizations.”), with Gaes et al., supra note 7, at 151 (“There is certainly no reason why public administrators cannot award bonuses to the best performing public prison managers and their employees, while also demoting, firing, or transferring the managers who are substandard.”), and id. at 180 (“Contrary to the point of view of some scholars, we do not see how a contract offers an advantage over public provision.”).

279Government Performance and Results Act of 1993 § 5(a), 31 U.S.C. § 9703(a) (2006).

280Id. § 9703(b).

281Id. § 9703(c).

282Id. § 9703(d).

283Some of the disadvantages of performance-based compensation may apply with different force in the public than in the private sector. For instance, the concern that market incentives will discourage public-interested people from entering the industry, see infra Part III.B.1, seems to not apply at all to private providers, who are presumably already profit motivated.

284See supra text accompanying notes 120–26.

285See infra Part III.C.2. This section only covers what measures should rationally be chosen, not the real-world possibilities for manipulation in the choice of goals. That sort of strategic behavior is covered infra Part III.C.1.

286John J. DiIulio, Jr., Measuring Performance When There Is No Bottom Line, in Performance Measures for the Criminal Justice System 142, 144 (1993).

287Id.

288Id. (internal quotation marks omitted).

289See, e.g., Cullen et al., supra note 13, at 87 (“[T]he objectives should be stated in a concrete, unambiguous way: ‘The XYZ prison will reduce recidivism of released high-risk offenders so that no more than 20% are arrested within 1 year.’”).

290See supra text accompanying notes 258–63.

291Of course, one should also set the weights to be put on the various measures in the index. See infra Part III.A; cf. Grizzle et al., supra note 241, at 80; Barnow, supra note 230, at 284 (“Even if the program has a single objective, it may be advantageous to use several measures as proxies if an ideal measure cannot be developed.”). Realistically, the number of measures shouldn’t be too large, lest it overwhelm decision-makers’ cognitive capacities. One can’t think about all things simultaneously.

292A survey article in 1975 reviewed 231 studies of particular performance measures, but at that time, in the authors’ opinions, there had apparently never been any comprehensive approach. (Presumably the Moos approach, if it was considered, was thought to be insufficiently comprehensive or not performance oriented.) The American Correctional Association had published comprehensive standards in the late 1970s, but they were primarily process oriented. See Grizzle et al., supra note 241, at 4 (citing Douglas Lipton et al., The Effectiveness of Correctional Treatment: A Survey of Treatment Evaluation Studies (1975); Am. Corr. Ass’n, Manual of Standards for Adult Correctional Institutions (1977)).

293Michael Montgomery, Performance Measures and Private Prisons, in 3 Prison Privatization, supra note 142, at 187, 193.

294Kevin N. Wright & James Boudouris, An Assessment of the Moos Correctional Institutions Environment Scale, 19 J. Res. in Crime & Delinq. 255, 255 (1982).

295See id. (citing sources using the Moos scale in the 1970s).

296Id. at 257 (quoting Rudolf H. Moos, Evaluating Correctional and Community Settings 41 (1975)).

297Id.

298Id. at 256; Elaine Selo, Book Review, 4 J. Crim. Just. 348, 349 (1976) (reviewing Moos, supra note 296).

299Wright & Boudouris, supra note 294, at 258.

300Id. at 274.

301Montgomery, supra note 293, at 193.

302Martha R. Burt, Urban Inst., Measuring Prison Results: Ways to Monitor and Evaluate Corrections Performance, at ii (1980).

303Id. at 97–105.

304Id. at 72.

305See generally William G. Saylor, Fed. Bureau of Prisons, Developing a Strategic Support System: Monitoring the Bureau’s Performance via Trends in Key Indicators (1988).

306DiIulio, supra note 286, at 150–52.

307John J. DiIulio, Jr., Recovering the Public Management Variable: Lessons from Schools, Prisons, and Armies, 49 Pub. Adm. Rev. 127, 129 (1989) (citing John J. DiIulio, Jr., Governing Prisons: A Comparative Study of Correctional Management (1987)).

308MTC Inst., Measuring Success: Improving the Effectiveness of Correctional Facilities 5 (2006).

309Am. Corr. Ass’n, Performance-Based Standards for Correctional Health Care in Adult Correctional Institutions (2002). These standards are discussed in Gaes et al., supra note 7, at 37–38.

310Gaes et al., supra note 7, at 37.

311Id. at 38.

312Id. at 37.

313Michael W. Ross et al., Measurement of Prison Social Climate: A Comparison of an Inmate Measure in England and the USA, 10 Punishment & Soc’y 447, 460–61 tbl.3 (2008).

314Id. at 463, 466–67 tbl.5.

315See William G. Saylor et al., Fed. Bureau of Prisons, Prison Social Climate Survey: Reliability and Validity Analyses of the Work Environment Constructs 3–8 (1996); see also supra text accompanying note 87.

316Charles H. Logan, Criminal Justice Performance Measures for Prisons, in Performance Measures for the Criminal Justice System, supra note 286, at 19; see Gaes et al., supra note 7, at xi (calling Logan’s approach “one serious attempt to develop a coherent theoretical and empirical approach to prison performance measurement”); id. at 5–8 (discussing Logan’s model). Joan Petersilia has also developed performance measures for community corrections. See Joan Petersilia, Measuring the Performance of Community Corrections, in Performance Measures for the Criminal Justice System, supra note 286, at 60, 77–78. But many of these are input measures (“Number and type of supervision contacts”), output measures (“Number of hours/days performed community service”), or outcome measures that can be easily gamed (“Number of arrests and technical violation[s] during supervision”). Id. at 77–78.

317Logan, supra note 316, at 27–32.

318Id. at 34.

319Id.

320Id. at 42–43.

321See id. at 42–57.

322See Logan, supra note 61, at 7–11, 13, 17; Logan, supra note 61, at 577–78, 583 fig.1.

323Logan, supra note 316, at 24.

324Id.

325Id. at 19, 21, 24.

326Id. at 25.

327Id. at 26.

328Id. at 29 n.7.

329John DiIulio thus seems incorrect when he states that Logan’s work “dispels the worry that any such measurement scheme is bound to be based exclusively on one or another moral or ideological view of the ‘ends of criminal justice’” and that his measures “encompass and satisfy every major school of thought about ‘what prisons are for.’” DiIulio, supra note 286, at 152.

330Gaes et al., supra note 7, at xii.

331DiIulio, supra note 307, at 129, 131 (citing John E. Chubb & Terry M. Moe, Politics, Markets, and America’s Schools (1990)); see also John E. Chubb, Why the Current Wave of School Reform Will Fail, Pub. Interest, Winter 1988, at 28.

332See Gaes et al., supra note 7, at 10–16 tbl.1.1; see also supra text accompanying note 291.

333John J. DiIulio, Jr., Rethinking the Criminal Justice System: Toward a New Paradigm, in Performance Measures for the Criminal Justice System, supra note 286, at 1, 6 (italics omitted).

334See supra text accompanying note 17.

335See DiIulio, supra note 286, at 152 (distinguishing between certain “process measures” and certain “performance measures” within Logan’s “security” dimension); see also Gaes, supra note 36, at 23 (“[J]urisdictions that buy prison services are most concerned about internal performance measures such as order, health, case management, program services, and safety.”).

336See supra text accompanying note 315.

337Ross et al., supra note 313, at 464 tbl.4.

338See supra text accompanying notes 313–14.

339See infra Part III.C.2.

340Cf. W. Kip Viscusi et al., Economics of Regulation and Antitrust 430–36 (4th ed. 2005) (discussing the theory of traditional rate-of-return regulation, primarily in the context of electric utilities).

341See infra Part III.A.

342Cf. Shapiro & Steinzor, supra note 223, at 1767 (questioning whether reducing regulatory cost to the private sector should be a GPRA performance measure for the FDA).

343See Durham, supra note 20, at 66; see also id. at 67 (“‘At none of the sites we examined were attempts made by government to evaluate rehabilitative success.’” (quoting Judith Hackett et al., Issues in Contracting for the Private Operation of Prisons and Jails 48 (1987))).

344Cf. Low, supra note 222, at 64; Alexander Volokh, Prison Vouchers, 160 U. Pa. L. Rev. 779, 834 (2012). One might also measure a random sample of inmates, see Low, supra note 222, at 46 n.298, though this might exacerbate risk issues. See infra Part III.B.2.

345Sharon Dolovich critiques “comparative efficiency” analysis and stresses moral considerations, see, e.g., Dolovich, supra note 3; Dolovich, supra note 5, though to my knowledge she hasn’t opined on performance measures.

346See Alexander Volokh, Rationality or Rationalism? The Positive and Normative Flaws of Cost–Benefit Analysis, 48 Hous. L. Rev. 79 (2011).

347See id. at 82–83.

348See id. at 84.

349See id. at 85–86.

350See id. at 86–88.

351See, e.g., Frank Ackerman & Lisa Heinzerling, Pricing the Priceless: Cost–Benefit Analysis of Environmental Protection, 150 U. Pa. L. Rev. 1553, 1580 (2002) (explaining that regulated industry has an incentive to overstate costs).

352See id. at 1579–80. This gives rise to potentially serious strategic behavior, which I address in infra Part III.C.2.

353Volokh, supra note 346, at 88.

354See id. at 88–91.

355See supra note 291 and accompanying text.

356These two approaches are identical. Let xi be the ith component of performance and pi be the reward for that component. Then the total performance-based component of compensation is Σpixi. Let P be the sum of the prices (P = Σpi). Then the performance-based component of compensation can be expressed as Σ(pi/P)xi = P Σwixi, where wi = pi/P is the weight placed on the ith component of performance and P is the price attached to the overall performance index Σwixi.

357Not that the price necessarily has to be equal to the social value—paying the price requires incurring the deadweight losses involved in raising tax money, and making incentives so high-powered might make the contract too risky. See infra Part III.B.2 for a discussion of optimal risk allocation. But at least the optimal prices (or at least the relative optimal prices of the different components of performance), from an efficiency perspective, will probably bear some relation to social value.

358See generally Volokh, supra note 6.

359See supra text accompanying notes 329–32.

360Cf. Christopher C. DeMuth & Douglas H. Ginsburg, Rationalism in Regulation, 108 Mich. L. Rev. 877, 885 (2010) (reviewing Richard L. Revesz & Michael A. Livermore, Retaking Rationality: How Cost–Benefit Analysis Can Better Protect the Environment and Our Health (2008)) (stating that Richard Revesz and Michael Livermore “regard regulatory cost-benefit analysis as a device for social engineering. . . . Our view of cost-benefit analysis is much more modest. . . . [W]e think that many important political questions . . . cannot be effectively decided by cost-benefit analysis.”).

361See DiIulio, supra note 286, at 146.

362See Barnow, supra note 230, at 279.

363Id. at 307; see also M. Todd Henderson & Frederick Tung, Paying Bank Examiners for Performance, Regulation, Spring 2012, at 32, 36 (“We . . . make no attempt to offer firm prescriptions for the optimal ratio [between debt and equity]. The mix should induce regulators to care about bank profits but not at the expense of risk shifting to creditors.”).

364M. Todd Henderson & Frederick Tung, Pay for Regulator Performance, 85 S. Cal. L. Rev. 1003, 1056–57 (2012).

365Id. at 1057.

366Id. at 1057 n.182 (citing Ernst Fehr & Armin Falk, Psychological Foundations of Incentives, 46 Eur. Econ. Rev. 687, 688 (2002); Uri Gneezy & Aldo Rustichini, A Fine Is a Price, 29 J. Legal Stud. 1, 14 (2000)).

367Id. at 1057.

368Id.

369But see supra Part II.C.3 (discussing possibilities for merit pay for public prison wardens).

370See Volokh, supra note 6, at 178–85.

371See infra Part III.B.2.

372See supra text accompanying notes 316–28

373See, e.g., Dicker, supra note 123, at 17; Grizzle et al., supra note 241, at 48–49; Petersilia, supra note 316, at 66.

374James Q. Wilson, The Problem of Defining Agency Success, in Performance Measures for the Criminal Justice System, supra note 286, at 156, 159; see also DiIulio, supra note 333, at 1–2, 13.

375Wilson, supra note 374, at 160–62.

376Id. at 161.

377See supra text accompanying notes 240–50.

378See Camp et al., supra note 99; M. Keith Chen & Jesse M. Shapiro, Do Harsher Prison Conditions Reduce Recidivism? A Discontinuity-Based Approach, 9 Am. L. & Econ. Rev. 1, 17–21 (2007); DiIulio, supra note 333, at 2; Francesco Drago et al., Prison Conditions and Recidivism, 13 Am. L. & Econ. Rev. 103, 120–25 (2011); Daniel S. Nagin et al., Imprisonment and Reoffending, in 38 Crime and Justice: A Review of Research 115, 115 (Michael Tonry ed., 2009); Rafael Di Tella & Ernesto Schargrodsky, Criminal Recidivism After Prison and Electronic Monitoring 28 (Nat’l Bureau of Econ. Research, Working Paper No. 15602, 2009), available at http://www.nber.org/papers/w15602.pdf; see also Gaes et al., supra note 7, at 124 (citing Robert J. Sampson & John H. Laub, Crime in the Making: Pathways and Turning Points Through Life (1993); Shawn D. Bushway et al., An Empirical Framework for Studying Desistance as a Process, 39 Criminology 491 (2001); Jeffrey Grogger, The Effect of Arrest on the Employment and Earnings of Young Men, 110 Q.J. Econ. 51 (1995); Jeffrey R. Kling, The Effect of Prison Sentence Length on the Subsequent Employment and Earnings of Criminal Defendants (Woodrow Wilson Sch., Discussion Paper No. 208, 1999)); id. at 129 (citing Alex R. Piquero et al., Assessing the Impact of Exposure Time and Incapacitation on Longitudinal Trajectories of Criminal Offending, 16 J. Adolescent Res. 54 (2001)); id. at 136 (citing Gerald G. Gaes & Newton Kendig, The Skill Sets and Health Care Needs of Released Offenders, in Papers Prepared for the “From Prison to Home” Conference 93 (2002), available at http://www.urban.org/UploadedPDF/410629_ReleasedOffenders.pdf).

379DiIulio, supra note 333, at 5 (“[C]rime rates and recidivism rates are indeed important[, though not the only,] measures of the system’s performance, which ought to be continually used and refined.”).

380See Barnow, supra note 230, at 281 (explaining that these are “gross outcome measures . . . in the sense that they do not necessarily reflect gains from the program”).

381See Harding, supra note 72, at 68 (“[T]he human variables are too volatile for any contractor to be expected to stand or fall by outputs alone . . . .”); Lynn, supra note 165, at 12; Kyle, supra note 162, at 2112.

382See supra Part II.C.2.c.

383See supra text accompanying note 255.

384See supra text accompanying notes 234–38, 251.

385See supra text accompanying note 340.

386See supra text accompanying notes 258–70.

387See Who We Are, CCA, http://www.cca.com/who-we-are (last visited Dec. 12, 2013) (noting that CCA joined the NYSE in 1994); Historic Milestones, GEO Group, http://www.geogroup.com/history (last visited Dec. 12, 2013) (noting that GEO joined the NYSE in 1996).

388See Who We Are, supra note 387 (“CCA houses nearly 80,000 inmates in more than 60 facilities . . . . CCA currently partners with all three federal corrections agencies . . . , many states[,] and local municipalities.”); Who We Are, GEO Group, http://www.geogroup.com/about_us (last visited Dec. 12, 2013) (“GEO’s operations include the management and/or ownership of 96 correctional, detention and residential treatment facilities encompassing approximately 73,000 beds.”).

389See Volokh, supra note 9, at 1237 & n.182 (relying on data from 1999).

390See id. (noting a 5%–8% share for MTC in 1999); Overview, Mgmt. & Training Corp., http://www.mtctrains.com/about-mtc/overview (last visited Dec. 12, 2013) (“Management & Training Corporation (MTC) is a privately- held company . . . .”).

391For discussions of the possibility of nonprofit prisons, see Low, supra note 222, at 4, and Richard Moran, Op-Ed., A Third Option: Nonprofit Prisons, N.Y. Times, Aug. 23, 1997, § 1, at 23. Compare with discussions of the advantages of nonprofit schools. See Byron W. Brown, Why Governments Run Schools, 11 Econ. Educ. Rev. 287, 293–96 (1992); John Morley, Note, For-Profit and Nonprofit Charter Schools: An Agency Costs Approach, 115 Yale L.J. 1782, 1795–1810 (2006); cf. also Education: Raising the Bar, Economist, June 15–21, 2013, at 30 (discussing risk issues for schools and teachers resulting from educational accountability schemes).

392Nicholson, supra note 216, at 6 (“The working capital requirements of a [payment-by-results] system will cause problems for Small and Medium Sized Enterprises and the third sector [i.e., nonprofits] in bidding for contracts.”).

393Dicker, supra note 123, at 24 (explaining that high incentives, through high risk, will “reduce the diversity of the market” by making it less attractive for nonprofits or small companies).

394Id. at 23. On the relationship between market concentration and innovation, see Richard Gilbert, Looking for Mr. Schumpeter: Where Are We in the Competition–Innovation Debate, in 6 Innovation Policy and the Economy 159 (Adam B. Jaffe et al. eds., 2006), for an argument that the relationship is inconclusive.

395See Volokh, supra note 9, at 1213–14 (arguing that the degree of concentration of the industry can affect the political influence the industry exerts); see also Volokh, Privatization, Free Riding, supra note 142, at 64; Volokh, The Effect of Privatization, supra note 142, at 10–11.

396Dicker, supra note 123, at 6.

397See supra note 357.

398Though not zero-risk: recall that the least risky contracts are cost-plus. See supra text accompanying note 385.

399See Dicker, supra note 123, at 23–24; Nicholson, supra note 216, at 6–7; see also Bolton & Dewatripont, supra note 256, at 13 (“[W]hen both employer and employee are risk averse, they will optimally share business risk.”).

400See Johnson, supra note 209.

401See supra text accompanying note 172.

402See supra text accompanying note 218.

403See supra text accompanying note 392.

404Dicker, supra note 123, at 24.

405See sources cited supra note 391.

406See Low, supra note 222, at 4–5 (suggesting creation of nonprofit prisons on “an experimental basis”).

407See, e.g., Dolovich, supra note 5, at 474–80.

408Edward L. Glaeser & Andrei Shleifer, Not-for-Profit Entrepreneurs, 81 J. Pub. Econ. 99, 102 (2001).

409See infra Part III.C.2.

410Glaeser & Shleifer, supra note 408, at 102.

411See Timothy Besley & Maitreesh Ghatak, Government Versus Private Ownership of Public Goods, 116 Q.J. Econ. 1343, 1347 (2001).

412Nicholson, supra note 216, at 6–7.

413Jeffrey B. Liebman, Social Impact Bonds: A Promising New Financing Model to Accelerate Social Innovation and Improve Government Performance 2 (2011); see also Cullen et al., supra note 13, at 88–89; Michaels, supra note 276, at 1052–58; Shifali Baliga, Note, Shaping the Success of Social Impact Bonds in the United States: Lessons Learned from the Privatization of U.S. Prisons, 63 Duke L.J. 437 (2013).

414Liebman, supra note 413, at 2 (internal quotation marks omitted).

415Though social impact bonds in the United States have been funded by non-philanthropic types such as Goldman Sachs. See Social Impact Bonds: Being Good Pays, Economist, Aug. 18–24, 2012, at 28.

416Liebman, supra note 413, at 2.

417Id.

418See supra note 213 and accompanying text.

419See infra text accompanying note 459.

420See Nicholson, supra note 216, at 16, 18; Big Hurdles to Be Overcome if Social Impact Bonds to Move from Margins of Public Services, Says Think Tank, Soc. Market Found. (July 31, 2013), http://www.smf.co.uk/media/news/big-hurdles-be-overcome-if-social-impact-bonds-move-margins-public-services-says-think-tank/; Tom Clougherty, Pioneering Social Impact Bonds in the United Kingdom, Reason Found. (Aug. 13, 2013), http://reason.org/news/show/pioneering-social-impact-bonds.

421Pub. L. No. 103-62, 107 Stat. 285 (codified as amended in scattered sections of 5 and 31 U.S.C.); see supra note 165.

422Shapiro & Steinzor, supra note 223, at 1744; see also id. at 1760 (“[A]gencies compelled to function in an antiregulatory, even hostile, political atmosphere are predictably reluctant to tell the truth to power. Instead, their goal has become convincing congressional and White House overseers that they are performing well despite budgets that are inadequate for effective implementation of their missions.”).

423Schoen, supra note 165, at 480.

424DiIulio, supra note 286, at 154.

425U.S. Gen. Accounting Office, supra note 223, at 7.

426Shapiro & Steinzor, supra note 223, at 1744.

427See Schoen, supra note 165, at 464 (citing The Results Act: Are We Getting Results?: Hearings Before the H. Comm. on Gov’t Reform & Oversight, 105th Cong. 20 (1997) (statement of Rep. Richard K. Armey, H. Majority Leader)); id. at 465 (citing Seven Years of GPRA: Has the Results Act Provided Results?: Hearing Before the Subcomm. on Gov’t Mgmt., Info., & Tech. of the H. Comm. on Gov’t Reform, 106th Cong. 20 (2000) (statement of Rep. Pete Sessions, Chairman, H. Results Caucus)); id. at 466–67 (citing Office of Mgmt. & Budget, Exec. Office of the President, The President’s Management Agenda (2002), available at http://www.whitehouse.gov/sites/default/files/omb/budget/fy2002/mgmt.pdf).

428See Eileen Norcross & Joseph Adamson, An Analysis of the Office of Management and Budget’s Program Assessment Rating Tool (PART) for Fiscal Year 2008, at 25 (unpublished working paper), http://mercatus.org/sites/default/files/publication/20070725_Analysis_of_PART_for_FY_2008.pdf; Eileen Norcross & Kyle McKenzie, An Analysis of the Office of Management and Budget’s Program Assessment Rating Tool (PART) for Fiscal Year 2007, at 22 (May 2006) (unpublished working paper), http://mercatus.org/sites/default/files/publication/PDF__An_Analysis_of_the_Office_of_Management_of_Budgets_Program_Assessment_Rating_Tool_for_FY_2007.pdf.

429See John B. Gilmour & David E. Lewis, Does Performance Budgeting Work? An Examination of the Office of Management & Budget’s PART Scores, 66 Pub. Admin. Rev. 742, 751 (2006); Norcross & Adamson, supra note 428, at 29–30.

430See, e.g., Teresa Curristine, Reforming the U.S. Department of Transportation: Challenges and Opportunities of the Government Performance and Results Act for Federal-State Relations, Publius, Winter 2002, at 25, 42; Jerry Ellig, Has GPRA Increased the Availability and Use of Performance Information? 5 (George Mason Univ. Mercatus Ctr., Working Paper No. 09-03, 2009).

431See Schoen, supra note 165, at 466 (citing 10 Years of GPRA—Results, Demonstrated: Hearings Before the Subcomm. on Gov’t Efficiency & Fin. Mgmt. of the H. Comm. on Gov’t Reform, 108th Cong. 4 (2004) (statement of Rep. Edolphus Towns, Member, Subcomm. on Gov’t Efficiency & Fin. Mgmt. of the H. Comm. on Gov’t Reform)); Ellig, supra note 430, at 1 (citing Jerry Ellig & Jerry Brito, Toward a More Perfect Union: Regulatory Analysis and Performance Management, 8 Fla. St. U. Bus. Rev. 1 (2009)); id. at 2 (citing U.S. Gov’t Accountability Office, GAO-08-1026T, Government Performance: Lessons Learned for the Next Administration on Using Performance Information to Improve Results (2008)).

432See supra Part II.C.2.d.

433Shapiro & Steinzor, supra note 223, at 1764 (quoting EPA, 2006–2011 EPA Strategic Plan: Charting Our Course 67 (2006), available at http://nepis.epa.gov/Adobe/PDF/P1001IPK.PDF).

434Id. at 1765 (quoting EPA, supra note 433, at 67); see also id. at 1773 (“[A]ttain water quality standards for all pollutants and impairments in more than 2,250 water bodies . . . . [R]emove at least 5,600 . . . specific causes of water body impairment . . . . [I]mprove water quality conditions in 250 . . . impaired watersheds nationwide . . . .” (altered capitalization and third and fifth omissions in original) (quoting EPA, supra note 433, at 43)).

435See supra Part II.C.3.

436See also Barnow, supra note 230, at 287 (discussing “whether the size of the award should vary with the extent to which standards are exceeded”); id. at 291–92 (“The national standards are set, based on experience in prior years, so that approximately 75 percent of the nation’s [providers] will exceed the standards . . . .”).

437See supra text accompanying notes 291, 332–33.

438See supra text accompanying note 356.

439See Bengt Holmstrom & Paul Milgrom, Multitask Principal–Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design, 7 J.L. Econ. & Org. (Special Issue) 24, 25 (1991) (“In general, when there are multiple tasks, incentive pay serves not only to allocate risks and to motivate hard work, it also serves to direct the allocation of the agents’ attention among their various duties.”).

440See supra text accompanying note 352 (noting retributivism as a possible unmeasurable dimension).

441See supra text accompanying note 352.

442See Grizzle et al., supra note 241, at 50–51.

443See Holmstrom & Milgrom, supra note 439, at 25 (“It would be better, . . . critics argue, to pay a fixed wage without any incentive scheme than to base teachers’ compensation only on the limited dimensions of student achievement that can be effectively measured.” (italics omitted)); see also Peter Smith, On the Unintended Consequences of Publishing Performance Data in the Public Sector, 18 Int’l J. Pub. Admin. 277, 284 (1995) (discussing “tunnel vision”); Education: Raising the Bar, supra note 391.

444See Holmstrom & Milgrom, supra note 439, at 26 (“[T]he desirability of providing incentives for any one activity decreases with the difficulty of measuring performance in any other activities that make competing demands on the agent’s time and attention.”).

445This assumes that test scores really are a true outcome measure, even if a partial one. Perhaps this is too charitable, though: it may be better to characterize test scores as proxy measures for a type of intelligence, and “teaching to the test” as a form of manipulation, as described below. See infra text accompanying note 457.

446See Holmstrom & Milgrom, supra note 439, at 25; id. at 32–33 (explaining that the desirability of incentives for measurable tasks depends on whether measurable and unmeasurable tasks are complements or substitutes in an agent’s cost function).

447See infra Part III.C.4.

448See sources cited supra note 378.

449See, e.g., Kelly Bedard & Eric Helland, The Location of Women’s Prisons and the Deterrence Effect of “Harder” Time, 24 Int’l Rev. L. & Econ. 147, 159–61 (2004); Lawrence Katz et al., Prison Conditions, Capital Punishment, and Deterrence, 5 Am. L. & Econ. Rev. 318, 331 (2003); Volokh, supra note 344, at 843–45. But see Tom R. Tyler, Why People Obey the Law 64 (1990) (“The most important normative influence on compliance with the law is the person’s assessment that following the law accords with his or her sense of right and wrong; a second factor is the person’s feeling of obligation to obey the law and allegiance to legal authorities.”); Paul H. Robinson & John M. Darley, The Role of Deterrence in the Formulation of Criminal Law Rules: At Its Worst When Doing Its Best, 91 Geo. L.J. 949, 953–56 (2003).

450See infra Part III.C.4; see also Cullen et al., supra note 13, at 84 (“Of course, some correctional managers might attempt to develop a painful prison in hopes of scaring offenders straight. We are confident that these efforts will fail and place managers at a disadvantage.” (citation omitted)).

451See Holmstrom & Milgrom, supra note 439, at 27 (“[I]ncentives for a task can be provided in two ways: either the task itself can be rewarded or the marginal opportunity cost for the task can be lowered by removing or reducing the incentives on competing tasks. Constraints are substitutes for performance incentives and are extensively used when it is hard to assess the performance of the agent.”).

452See supra text accompanying note 120.

453Of course, the relationship between rearrest rates and true recidivism can change—for instance, enforcement agencies might, over time, reallocate resources from one type of crime to another. This raises the question of whether to control for baseline rates. See supra Part II.C.2.c.

454See Gaes et al., supra note 7, at 51. Currently, there is, to the contrary, some incentive for private firms to exaggerate infractions so as to prevent early releases. See Dolovich, supra note 5, at 518–23.

455I prefer to think of drug use as neutral in itself, though one can want to control inmate drug use instrumentally for the sake of outcomes like violence or rehabilitation.

456See Petersilia, supra note 316, at 66–67; see also Gaes et al., supra note 7, at 23–24; supra note 76.

457See Smith, supra note 443, at 286, 290–92 (discussing “suboptimization” and “measure fixation”).

458Dicker, supra note 123, at 19.

459On the use of stock options in private prisons, see Volokh, supra note 6, at 174.

460Braswell v. Corr. Corp. of Am., 419 F. App’x 662, 628 (6th Cir. 2011).

461Id. at 623–24.

462See Dicker, supra note 123, at 23; see also Richard A. McGowan, Privatize This?: Assessing the Opportunities and Costs of Privatization 166 (2011); Barnow, supra note 230, at 287, 297–98, 305–06; Pozen, supra note 79, at 283; Kyle, supra note 162, at 2112; Inwood, supra note 210. For a recent example of parking in a non-prison context, see Mary Shinn et al., Despite Backlogs, VA Disability Claims Processors Get Bonuses, Wash. Post, Aug. 25, 2013, http://articles.washingtonpost.com/2013-08-25/world/41446536_1_claims-processors-new-claims-backlog.

463See Gilroy, supra note 163 (“So literally, you have the private vendor take over the exact same population, and then use the same metrics you use to assess the public facilities.”); cf. Volokh, supra note 449, at 806–07 (arguing that requiring prisoners to take all comers makes sense to prevent prisons from systematically rejecting certain inmates).

464See supra text accompanying notes 135–36.

465See Dicker, supra note 123, at 24; Nicholson, supra note 216, at 6–7; David Boyle, The Perils of Obsessive Measurement, RSA (Nov. 1, 2010), http://comment.rsablogs.org.uk/2010/11/01/perils-obsessive-measurement/.

466Cf. Volokh, supra note 344, at 806–07 (discussing inmate characteristics that institutions are able to consider).

467One could argue—though I’m not doing so here—that even outright creaming, where prisons only accept the easier-to-treat inmates, might be beneficial, since it might be worthwhile to separate the “better” criminals from the harmful influence of the “worse” ones. See, e.g., Volokh, supra note 449, at 837–38.

468Dicker, supra note 123, at 25.

469See Smith, supra note 443, at 292; Boyle, supra note 465.

470See, e.g., Emily Richmond, Did High-Stakes Testing Cause the Atlanta Schools Teaching Scandal?, Atlantic (Apr. 3, 2013, 11:50 AM), http://www.theatlantic.com/national/archive/2013/04/‌did-high-stakes-testing-cause-the-atlanta-schools-cheating-scandal/274619/.

471See Joel Dyer, The Perpetual Prisoner Machine: How America Profits from Crime 211, 221 (2000); Gaes et al., supra note 60, at 18; Low, supra note 222, at 39 (citing John L. Clark et al., Report to the Attorney General: Inspection and Review of the Northeast Ohio Correctional Center ch. VII.B.2 (1998) (reporting that CCA’s legal counsel warned administrators not to write reports about incidents because of potential legal liability); id. chs. VIII, XI; Harding, supra note 145, at 323–24); Developments in the Law—The Law of Prisons, supra note 9, at 1884.

472See supra text accompanying notes 267–68.

473See Gaes et al., supra note 60, at 18.

474McDonald et al., supra note 22, at 50.

475See id. at 50, 51 tbl.4.1.

476See Thomas, supra note 138, at 109.

477S.B. 2038, 2012 Leg., Reg. Sess., sec. 1, § 944.7115(8)(d) (Fla. 2012).

478See id.; see also Nicole B. Cásarez, Furthering the Accountability Principle in Privatized Federal Corrections: The Need for Access to Private Prison Records, 28 U. Mich. J.L. Reform 249, 293 (1995) (citing Ira P. Robbins, The Legal Dimensions of Private Incarceration, 38 Am. U. L. Rev. 531, 752 (1989)) (explaining that Robbins’s Model Contract “calls for an employee of the contracting agency to have access to prison facilities and all records kept by the contractor at all times”); Low, supra note 222, at 39 (citing Clark et al., supra note 471, ch. XI); Gilroy, supra note 163 (discussing the full-time monitor at each private prison in Ohio plus surprise inspections by the Correctional Institution Inspection Committee).

479Cásarez, supra note 478, at 295; Dolovich, supra note 5, at 490, 493–95.

480See Low, supra note 222, at 38.

481See Jody Freeman, Extending Public Law Norms Through Privatization, 116 Harv. L. Rev. 1285, 1317 (2003).

482See generally Volokh, supra note 149.

483See Cásarez, supra note 478, at 293–94 (noting that the American Correctional Association requires that certain records be maintained “for facility accreditation and the contracting agency”).

4845 U.S.C. § 552 (2012).

485See Forsham v. Harris, 445 U.S. 169, 180 (1980) (stating that whether a private firm is subject to FOIA depends on whether it’s subject to extensive, day-to-day government control); see also Cásarez, supra note 478, at 268–79.

486See Kissinger v. Reporters Comm. for Freedom of the Press, 445 U.S. 136, 152 (1980) (explaining that FOIA requires an agency to disclose only documents it has “created and retained”); see also Cásarez, supra note 478, at 279–84.

4875 U.S.C. § 552(b)(4); Cásarez, supra note 478, at 284–91.

488Cásarez, supra note 478, at 287 (citing Critical Mass Energy Project v. NRC, 975 F.2d 871, 878 (D.C. Cir. 1992)).

489Id.

490See id. at 289; see also supra text accompanying note 36.

491Cásarez, supra note 478, at 292 (quoting Stephen S. Madsen, Note, Protecting Confidential Business Information from Federal Agency Disclosure After Chrysler Corp. v. Brown, 80 Colum. L. Rev. 109, 113 (1980)) (internal quotation marks omitted).

4925 U.S.C. § 552(b).

493Cásarez, supra note 478, at 289.

494Id. at 260 (quoting Charles H. Logan, Private Prisons: Cons and Pros 147 (1990)).

495Id. at 296 (citing as examples Fla. Stat. Ann. § 119.011(2) (West 1985); Ga. Code Ann. § 50-18-70(a) (Michie 1994)).

496Freeman, supra note 481, at 1285. The term is pronounced [pŭb’lĭ-kĭ-zā’shən]. Id. at n.1.

497Cásarez, supra note 478, at 299 (citing Robbins, supra note 478, at 752–53).

498See supra text accompanying note 252.

499Durham, supra note 20, at 69.

500Id. (quoting Jeremy Bentham, A Bentham Reader 200 (Mary Peter Mack ed., 1969)).