How do contracts and performance incentives affect conditions and recidivism in private prisons?
Executive summary
Contracts that pay private prisons per diem or per bed incentivize occupancy rather than rehabilitation, producing weak pressure to fund programming that reduces reoffending [1] [2]. Switching to performance-based contracts—bonuses tied to reduced recidivism or intermediate outcomes like employment and housing—can reorient operators toward better conditions and lower recidivism, but empirical results and measurement challenges mean careful design, oversight, and guardrails are required [3] [4] [5].
1. The default payment model rewards beds, not people
Most U.S. private prison contracts still remunerate operators on a per-diem or occupancy basis, a structure economists say contains no direct incentives to lower recidivism and instead encourages cost-cutting that can harm conditions and programming [1] [2] [6]. Scholars and policy analysts argue this payment model explains why private and public prisons often show similar recidivism and cost profiles: the contract, not the operator’s label, drives behavior [1] [7].
2. What performance incentives aim to change — and how
Performance-based contracting ties a portion of payment to outcomes such as reduced return-to-prison rates or improved employment placements after release, rewarding firms that invest in rehabilitation and reentry supports [3] [4]. Proposals split total compensation into a guaranteed base and an incentive payment—sometimes about 10 percent—released only if targets (e.g., a 5 percent cut in recidivism and a 5 percent rise in job placement) are met, aligning profit with public-safety goals [3] [5].
3. Real-world experiments: mixed but instructive
Australia and New Zealand have implemented incentive contracts that award bonuses for lower recidivism, and one Australian facility received a multimillion-dollar bonus after achieving reduced reoffending, showing that bonus structures can be operationalized [5] [8]. U.S. examples in community corrections, such as Pennsylvania’s 2013 contract changes, reportedly produced declines in recidivism—about 11 percent in early results—suggesting outcomes payments can affect behavior when carefully applied [9].
4. Measurement, causality, and legal limits complicate impact
Designing these contracts faces practical problems: recidivism is hard to measure causally, baseline crime trends and selection effects can mask true operator performance, and larger incentive shares increase disputes over attribution [10] [4]. Scholars warn that intermediate metrics (employment, housing, program completion) may be more practical and legally defensible than raw recidivism rates, though each metric creates its own calibration challenges [4] [10].
5. Perverse incentives and political economy risks
Performance pay can mitigate some perverse incentives of occupancy-based contracts, but other distortions persist: private operators have lobbied for policies that increase incarceration demand and critics point to “cherry-picking” low-cost prisoners to boost measured outcomes [11] [12]. Contracts that guarantee beds or require “lockup quotas” create incentives for states and companies alike to maintain high incarceration levels; fixing prices without reforming broader enforcement and sentencing incentives risks nullifying any recidivism bonuses [11].
6. A cautious path forward: design, oversight, and complementary reforms
Analysts recommend several guardrails: make bonuses meaningful to operator margins, reward intermediate outcomes that predict reduced reoffending, include penalties for operational harms like violence, and link contract renewal to sustained performance while improving transparency and independent evaluation [3] [4] [5]. Yet even advocates concede that better contracting is only one tool; reducing mass incarceration also requires reforms to prosecution, sentencing, and reentry funding so that altered prison incentives do not operate in isolation [1] [5].