Privatization and the Law and Economics of Political Advocacy

Abstract:     
A common argument against privatization is that private providers will self-interestedly lobby to increase the size of their market. In this Article, I evaluate this argument, using, as a case study, the argument against prison privatization based on the possibility that the private prison industry will distort the criminal law by advocating for incarceration.

I conclude that there is at present no particular reason to credit this argument. Even without privatization, government agents already lobby for changes in substantive law - in the prison context, for example, public corrections officer unions are active advocates of pro-incarceration policy. Against this background, adding the extra voice of the private sector will not necessarily increase either the amount of industry-increasing advocacy or its effectiveness. In fact, privatization may well reduce the industry's political power: Because advocacy is a public good for the industry, as the number of independent actors increases, the largest actor's advocacy decreases (since it no longer captures the full benefit of its advocacy) and the smaller actors free-ride off the largest actor's contribution. Under some plausible assumptions, therefore, privatization may actually decrease advocacy, and under different plausible assumptions, the net effect of privatization on advocacy is ambiguous.

The argument that privatization distorts policy by encouraging lobbying is thus unconvincing without a fuller explanation of the mechanics of advocacy.

Keywords: privatization, private prisons, law and economics, lobbying, political advocacy, collective action

JEL Classifications: D43,D71,D72,D73,D78,H11,H41,J45,J51,K23,L32,L33

Accepted Paper Series