@techreport{NBERw5744,
 title = "The Proper Scope of Government: Theory and an Application to Prisons",
 author = "Oliver Hart and Andrei Shleifer and Robert W. Vishny",
 institution = "National Bureau of Economic Research",
 type = "Working Paper",
 series = "Working Paper Series",
 number = "5744",
 year = "1996",
 month = "September",
 URL = "http://www.nber.org/papers/w5744",
 abstract = {When should a government provide a service inhouse and when should it contract out provision?  We develop a model in which the provider can invest in improving the quality of service or reducing cost.  If contracts are incomplete, the private provider has a stronger incentive to engage in both quality improvement and cost reduction than a government employee.  However, the private contractor's incentive to engage in cost reduction is typically too strong because he ignores the adverse effect on non-contractible quality.  The model is applied to understanding the costs and benefits of prison privatization.},
}