July 09, 2007
Brian Galle on Volokh's Privatization
Posted by Christine Hurt

"Privatization and the Law and Economics of Political Advocacy" is a fun read and a smartly argued paper.  A few of its conclusions strike me as slightly oversold, but it is certainly on solid ground in its central claim that the effects of privatization on total industry lobbying effort are complex and hard to measure directly.

Professor Volokh's analysis begins as an elaboration on the classic Mancur Olson theory that lobbying effort creates positive externalities for other similarly situated firms, leading to underprovision of lobbying.  His insight here is that this dynamic may hold true for private prison operators (ppo) and public-sector prison-guard unions.  Thus, a critical point for the paper is to establish that the unions and the ppo in fact are similar enough to free ride on one another's lobbying.

At this point I'm not fully sold on that proposition.  If the union is a perfect agent for its members, it should be largely indifferent to the welfare of non-members.  Current members should benefit only slightly from expanding prison populations: prison crowding may make their jobs more secure, and increase their overtime pay, but there are limits on those benefits, and they are balanced to an extent by the likelihood that crowding increases their personal risk.  Larger union membership might increase union "clout" but also increases agency costs and diminishes each member's control over the union.  (I assume here that all public-sector jobs are unionized, so that there is no need to expand union coverage to prevent capital shifting to non-union firms.  But that seems a safe assumption, since if many public prison jobs were non-unionized, much of the analysis of the paper would break down.)  In contrast, the ppo can have essentially unlimited benefits from expanding prison populations.  So the marginal returns to lobbying effort for the union diminish much faster.  They may diminish fast enough that even a rather small ppo sector will want to make its own expenditures.   

Another difficulty with the assumption that unions and ppos will free-ride off each other is that political influence, once acquired, may serve many purposes and the interests of the two actors are often antagonistic.  This is likely true of oligopolies generally.  Lobbying can be both pie-dividing and pie-expanding.  Unless we know what our competitors are doing with the influence they acquire, we can't trust them to spend solely to expand the pie rather than expand and also slice in their own favor.  As Prof. V demonstrates, there is no easy way for one side to know just how the other is using its lobbying influence.  Both must therefore spend their own money. 

Relatedly, and as Prof. V. acknowledges, if lobbying efforts can be cashed out in a variety of ways once sunk, and each actor also has incentives to lobby for policies other than the one producing the externality, then adding additional actors may increase overall lobbying effort.  Prof. V's  response to this point (at 34-35) is to assume that political capital, like cash, is dissipated when used.  But his only authority for that claim is a cf. cite to an anecdote from a NY Times article.  We could certainly tell alternative stories on that front.  For instance, there could be relational capital -- e.g., officials may give favors based goodwill built from past encounters, or may be generous in order to pave the way for future contributions.  In short, I'd like to see more discussion of this point.

Finally, another key assumption of the paper is that public-sector unions are likely to be the dominant lobbying actor because they command a larger "share" of the relevant market -- that is, they realize most of the benefits from pro-incarceration lobbying.  These benefits are said to come in the form of above-market salaries, measured by comparison to "private-sector corrections officers' wages."  (21-23 & n.68)  Again, I'd like to hear a lot more on that point, given its centrality to the analysis.  Are public and private sector officers similar, or are public sector more qualified?  Do public employees have to pass background checks private officers don't? Or are private sector jobs safer, because private firms "skim" the safest (i.e., the cheapest) populations?  The "rents" commanded by public sector workers might be a risk premium.

Most of these points, however, go to the question whether privatization in fact decreases pro-incarceration lobbying.  For the most part, the Paper (wisely, in my view) eschews making a final judgment on that point, and instead offers us a highly accessible and thoughtful introduction to the complexities of the issue.  At points, though, it reaches a bit further, especially in the conclusion (for example, at 51 and 53). (""My opinion, based on the above theory and evidence, is that privatization will probably not worsen any political influence problem, and may alleviate it.")  I'm not sure what "evidence" we're talking about here; Prof. V. acknowledges earlier that the empirics he surveys are inconclusive.  This paper is interesting enough without over-claiming.  I'd trim these passages (and, not be a killjoy, I'd also cut most of the barrage of unfunny joke footnotes that pop up in the conclusion as well.  "They all deserve to [go]."  I mean -- the Star Wars quote?  That was forced.)

In the meanwhile, I'll look forward to the next dispatch from this talented writer and scholar.

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