Much has been made (mostly on the left) about the explosion of incarceration, and especially private prisons, in this country. Private corporations running state prisons creates a truly awful incentive structure. The prison operators make more money if there are more inmates, and so they lobby for tighter laws and harsher sentencing. In one recent high-profile case, a private prison owner bribed a judge about $2.6 million to deliver thousands of inmates over a period of decades. I have to imagine that this case is only the most brazen example of a much larger phenomenon.
What if instead of profiting from incarceration, private corporations stood to gain from lower crime rates? State governments spend plenty on parole monitoring and post-release services, but it’s hard to say if these are working well. There’s nothing to compare them to … no competition.
What if parole were privatized, with the costs paid to a corporation that must pay back a penalty if the parolee is jailed again within some time period? The corporation then has a financial incentive to find the most efficient way to rehabilitate the parolee. For example, the parole corporation might, motivated by profit, provide free services related to education, job placement, counseling, or even relocation away from bad influences.
This is essentially a form of insurance. For a given parolee, a fixed term (e.g. 5 years), and a specified coverage (e.g. 50% of future incarceration costs), parole corporations might compete to offer the lowest insurance premium. Whoever can most greatly improve the individual’s chance of future success (at the lowest cost) will have the lowest risk of paying the premium, and so will be able to win this competition.
There are obviously some residual conflicts in such a system, and potential for abuse. Insurers might need some power to compel parolees to participate, but that power must be limited. With too much power, the rate competition could easily become a slave auction. Penalties must also be set in the event of the parolee’s death, injury, or illness. Otherwise, finagling a diagnosis treated with strong prescription sedatives might seem like a very profitable solution. I’m sure there are many other such conflicts (e.g. interfering with police investigations!), and the insurance contract would have to be drawn up with great care to mitigate them.
If such a program can be designed, then it can be tested. Parolees could be assigned at random to the current system or the new one, and the results should be easy to compare in a few years’ time. Politically, I think the idea is compatible with both main streams of American thought on the issue, a free-market solution that’s focused on reducing crime by helping those in need.
Parole seems like the obvious place for such a system, but the concept extends much further. Could governments save money on welfare expenses by paying bonuses to private job placement agencies who take people off the rolls? What if they purchased insurance policies against welfare, crime, and all sorts of costs, on every citizen, with insurers who have no power over the insuree?
Perhaps I’m too optimistic about intervention by insurers. From what I’ve seen, health insurers do disappointingly little, in fact just about nothing, to try to improve the health of their policyholders … but health is a Hard Problem to solve. Maybe crime is easier.