Is Outsourcing of Public Services Cost Effective?

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Many states are outsourcing the operation of state prisons to private contractors. This article reports the research that was done in Arizona to determine whether it saved the state money. It turns out that the assumption that private contractors operate more efficiently than public prisons is not supported by the data. This is a familiar story in other programs that outsource public services to private contractors. For example, the data on Charter Schools do not support the claim that they provide a better education or that they operate more efficiently. Moreover, Charter Schools and the private contractors that run state prisons, cherry pick the clients that they serve. The state prison contractors do not accept prisoners that are more costly to serve because of poor health or other reasons. Most Charter Schools are able to select the students that they enroll. The public schools do not have the option of refusing to enroll students who may be more costly to serve, or those who are more likely to be successful.