The Challenge of Comparing Public and Private Correctional Costs

Policy Brief

The Challenge of Comparing Public and Private Correctional Costs

Can privately operated prisons reduce costs without compromising performance?

Eight percent of inmates in the U.S. federal and state prison system are housed in privately operated correctional facilities. Yet there remains debate over the relative cost of public and private prisons. Some research suggests that governments can save money through public-private partnerships; other research finds that the cost difference is negligible or that public sector delivery is cheaper. One of the primary reasons for this disparity is different budgeting and accounting practices in the public and private sectors, which make “apples-to-apples” comparisons difficult and often distort cost comparisons in favor of the public sector.

The Biennial Comparison of Private Versus Public Provision of Services Report, published in 2011 by the Arizona Department of Corrections (ADOC), exemplifies this problem. It suffers from a deficient treatment of capital assets and liabilities, omits correctional healthcare costs, fails to adjust operating costs to reflect qualitative differences in programming, ignores retiree healthcare and pension costs for public employees, overlooks the private sector’s assumption of legal claims risk, and forgets that private correctional companies pay significant taxes to state and local governments. These methodological shortcomings undermine ADOC’s conclusion that private prisons are costlier than public ones in Arizona.

By contrast, a 2013 study by Temple University economists, which analyzed data from nine different states (including Arizona) and corrected for many of the factors discussed above, found that privately operated prisons substantially cut costs overall, while generally performing equal to or better than their government-run peers. The lesson here is that rigorous cost comparisons must be undertaken carefully, lest they muddy the debate at the expense of sound policymaking.


Harris Kenny is a state and local government policy analyst at Reason Foundation, a non-profit think tank advancing free minds and free markets.

Leonard Gilroy is vice president of government reform at Reason Foundation, a nonprofit think tank advancing free minds and free markets. He also serves as senior managing director of the Pension Integrity Project at Reason Foundation, which assists policymakers and other stakeholders in designing, analyzing and implementing public sector pension reforms.