Jack McHugh over at the Mackinac Center posted an excellent piece yesterday on the perverse incentives involved in treating prisons as an economic development program. It's worth checking out.  Whenever there's talk of closing a prison, anywhere in the US, you can expect to hear a loud protest from those who argue that the closure would have a negative economic impact on the local community.

McHugh asks if prison policy should be viewed as a government jobs program. His answer: "Clearly the answer is "no." The perverse incentives such an explicit policy would generate are not hard to imagine." Right he is. And this rings home the importance of a fundamental economic principle: Incentives matter

After all, prisons don't just require gainfully employed correctional officers; they also require prisoners. Legislators, policy makers, and bureaucrats respond to incentives just like the rest of us. It's important to think through what sort of incentive structure would be put in place by keeping prisons open simply because of not wanting to lay corrections workers off. What if society doesn't have enough criminals to fill the beds? Must they be produced?

The same logic applies to areas of prison privatization.

Last month I covered a story of the nation's largest prison corporation, Corrections Corporation of America (CCA), offering state governments cash for corrections facilities. The deal on its face seemed sweet for cash-strapped states. But there were strings attached - states had to guarantee 90% occupancy rates. One look at the incentives and you're covered in red flags. How could they possibly enter into such an agreement without it having serious policy implications?

It bears repeating: Incentives matter.

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