Public Contract Law Journal

Information Asymmetry in Private Prison Management: Monitoring and Oversight as the Basis for Private Prison Legitimacy

by Marcos Gonzalez

Marcos Gonzalez ( earned his J.D. from The George Washington University Law School in May 2017. He received an M.A. in philosophy from Georgia State University in 2013. The author would like to thank Christopher McMahon, Christopher Yukins, Collin Swan, Ioana Cristei, Brittany Finder, Jordan Hess, and Rachel Amster for their recommendations throughout writing this Article.

I. Introduction

The most pressing concerns about outsourcing governmental functions can be resolved through more robust and innovative systems to monitor and oversee government contractors. While this argument applies to all governmental functions, the author uses private prisons as a test case. We can articulate the central problem with outsourcing governmental functions by placing greater emphasis on how monitoring and oversight could allow for the legitimacy of delegating a core government function to a private company. To highlight the relationship among legitimacy, monitoring, and oversight, this Article refocuses the legitimacy debate away from moral arguments and toward solutions grounded in agency theory. If we think of a legitimate private prison administrator as one that has overcome agency problems, procurement professionals could then identify clear solutions to problems stemming from outsourcing prison administration. Acquisition planners can draw on these insights as well as those available to them from data science, managerial science, and principles of contract formation. Although this Article refocuses the legitimacy debate away from moral arguments, it preserves a critical feature of any moral argument: its ability to override considerations of comparative efficiency.1 Clearly, current and unaddressed failures in oversight and monitoring provide stronger reasons to not outsource prisons than the possibility that they are less expensive and more efficient.2

The privatization of prison management is a subject of intense moral and political debate3 as well as public scrutiny.4 In reality, private prisons may be a fact of life. The Department of Homeland Security (DHS) and the Justice Department (DoJ) have both announced their intent to continue using privately managed facilities.5 However, less than a year prior, the DoJ announced it would phase out the use of private prisons6 based on its findings that these facilities underperform relative to comparable government-run facilities.7 The decision to use private facilities should not merely depend on the president’s political party, since private prisons involve a central function of state power — administering punishment. This decision must instead be made when stakeholders have adequately considered and mitigated problems stemming from outsourcing these functions.

Basic concepts of agency theory can help explain why evaluating prisons based on behavior-based metrics will fail when monitoring is deficient. Considering this deficiency, the government cannot currently control those facilities and prevent interests unaligned with the public interest from affecting prison policy. A viable solution calls for more sophisticated and real time methods of monitoring and overseeing private prisons, with the goal of ensuring government control over individual facilities as well as prison policy. Effective monitoring allows the government to accurately evaluate contractor performance and implement prison policies. Information asymmetry results from deficient monitoring, and the government will find it difficult to maintain control over facilities. In a situation where the government can collect and analyze performance data with comparative ease, there are fewer concerns related to the use of contractors performing closely associated functions, such as administering prisons. As the tasks given to contractors increase in complexity, so too do the chances of compromising the function’s legitimacy.

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