Privatization and the Law and Economics of Political Advocacy
59 Pages Posted: 10 Nov 2006 Last revised: 25 Jun 2014
Date Written: February 2008
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, actors in the public sector 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 dominant actor’s advocacy can decrease (since it no longer captures the full benefit of its advocacy) and the other actors may free ride off the dominant actor’s contribution. Under some plausible assumptions, therefore, privatization may actually decrease advocacy. Under different plausible assumptions, the net effect of privatization on advocacy is ambiguous, but in any event, privatization does not unambiguously increase advocacy. 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 Classification: D43, D71, D72, D73, D78, H11, H41, J45, J51, K23, L32, L33
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