The article "The Proper Scope of Government: Theory and an Application to Prisons" by Hart, Shleifer, and Vishny explores the optimal balance between government and private provision of public services, using the example of prisons. The authors develop a model where the provider can invest in improving service quality or reducing costs. However, private contractors have stronger incentives to cut costs, often at the expense of quality, because they do not face the same residual control rights as government employees. This leads to inefficiencies in service quality and cost. The paper argues that the choice between in-house provision and contracting out depends on the nature of the service. For routine services, contracting out can be efficient due to the ability to make complete contracts. However, for services where quality is difficult to specify, in-house provision may be more appropriate to ensure quality. The authors also discuss the role of competition in privatization, noting that competition can strengthen the case for privatization by increasing efficiency. The analysis of prison privatization shows that while private providers may reduce costs, they may also compromise quality. The authors find that the theoretical results, combined with empirical evidence, suggest skepticism about the wisdom of prison privatization. They conclude that government ownership is often suboptimal, as both cost and quality can be improved through privatization in some cases and worsened in others. The paper also addresses the issue of government corruption, arguing that corrupt politicians may favor privatization to extract bribes, even when in-house provision is socially preferable. The authors emphasize the importance of residual control rights in determining incentives and the need for effective regulation and competition to ensure efficient and high-quality public services.The article "The Proper Scope of Government: Theory and an Application to Prisons" by Hart, Shleifer, and Vishny explores the optimal balance between government and private provision of public services, using the example of prisons. The authors develop a model where the provider can invest in improving service quality or reducing costs. However, private contractors have stronger incentives to cut costs, often at the expense of quality, because they do not face the same residual control rights as government employees. This leads to inefficiencies in service quality and cost. The paper argues that the choice between in-house provision and contracting out depends on the nature of the service. For routine services, contracting out can be efficient due to the ability to make complete contracts. However, for services where quality is difficult to specify, in-house provision may be more appropriate to ensure quality. The authors also discuss the role of competition in privatization, noting that competition can strengthen the case for privatization by increasing efficiency. The analysis of prison privatization shows that while private providers may reduce costs, they may also compromise quality. The authors find that the theoretical results, combined with empirical evidence, suggest skepticism about the wisdom of prison privatization. They conclude that government ownership is often suboptimal, as both cost and quality can be improved through privatization in some cases and worsened in others. The paper also addresses the issue of government corruption, arguing that corrupt politicians may favor privatization to extract bribes, even when in-house provision is socially preferable. The authors emphasize the importance of residual control rights in determining incentives and the need for effective regulation and competition to ensure efficient and high-quality public services.