In the case of prisons, concern that private providers hire unqualified gaurds to save costs, thereby undermining safety and security of prisoners why private contracting is generally cheaper, and why in some cases it may deliver a higher, while in others a lower, quality level than in-house provision by the government…
In contrast, if the provider is a private contractor, he has the residual control approval for a cost reduction. At the same time, if a private contractor wants to improve quality and get a higher price, he needs to negotiate with the government since the government is the buyer of the service. As a consequence, the private contractor generally has a stronger incentive both to improve quality and to reduce costs than the government employee has. But, the private contractor’s incentive to engage in cost reduction is typically too strong since he ignores the adverse impact on quality (Hart, Shleifer, and Vishny, 1997, pp. 1128 and 1129).

In this piece, Hart, Vishny and Shleifer construct an economic model that captures the major concern of the anti-private prison movement. If we endow for-profit companies the responsibility of administering justice in society then they will be so overwhelmed by their desire for profit that they will cut the bottom line so low as to sacrifice the safety of workers, inmates, and society in general.
Secondly, this paper holds a major criticism to this myopic view of for-profit prison management. The incentive of private prisons to cut costs is not omnipresent. Only when the market is thin and there is little to no competitive companies bidding for government contracts will private prisons be driven to cut costs and sacrifice quality.
This paper is great on these margins, but I am concerned over the usage of the word quality and its ambiguous implications. Is the quality of a prison system objectively clear and not up for debate? Barnett (1985 and 1986) introduced an entirely different paradigm of justice based upon restitution rather than retribution. Barnett’s questions will never get played out in the current debate between public prisons and private prison management.
As the debate stands the definition of quality is fixed. Rates of violence, financial costs, the number of inmates, health conditions all serve as proxies to compare the effectiveness rates of public prisons with their contracted out alternatives. But Barnett’s paradigm is driven by the lack of attention paid to victim’s rights and restitution, which has no place in the debate nor the formalized techniques that are used to flesh it out.
How can we make claims about the effectiveness and quality of institutions without insights into the original intentions behind their design, origin, and adoption? I think this is a clear sign of the value of economic history.