Private Entrepreneurs in Public Services: A Longitudinal Examination of Outsourcing and Statization of Prisons

Abstract

Some fear that the profit‐maximizing orientation of private entrepreneurs conflicts with societal goals expected in the provision of complex public services. Received contractual theories advocate that private involvement in public services will result in cost reductions at the expense of quality. Using prisons as our empirical context, we benefit from an event involving the outsourcing and subsequent statization of correctional facilities in Brazil. Triangulating between quantitative and qualitative information, we do not find evidence of quality deterioration in outsourced prisons and suggest that a key mechanism driving this result is the presence of public supervisors closely working on‐site with private entrepreneurs in a hybrid governance fashion. We then deliver a set of new propositions that move beyond hazard considerations to examine how the combination of heterogeneous public and private capabilities might yield learning and spillover effects unattainable through pure government management or full‐fledged privatization. Copyright © 2013 Strategic Management Society.

Contextualization and the advancement of entrepreneurship research

“…Fortunately, recent research highlights the important role of context in explaining entrepreneurial actions and their outcomes (Bjørnskov and Foss, 2013;Foss, Lyngsie and Zahra, 2013;Sarasvathy and Venkataraman, 2011;Ucbasaran, Westhead and Wright, 2001;Cabral et al, 2013). These actions cross multiple levels and are shaped by different sets of contextual variables.…”

Integrating Organizational Economics and Resource Dependence Theory to Explain the Persistence of Quasi Markets

“…Legislation encouraging profit-seeking organizations to enter government service sectors is enacted for the primary purpose of improving the productivity of public resources (Sharkansky 1980;Villalonga 2000;Warner and Hefetz 2008). Governments then, seeking the productivity gains associated with privatization, often allow rent collection by proprietary organizations while trying to manage the accompanying probity hazard (Bovaird 2004;Cabral et al 2013;Laffont and Tirole 1991). In short, both production costs and transactions costs matter.…”

Integrating Organizational Economics and Resource Dependence Theory to Explain the Persistence of Quasi Markets

“…Legislation encouraging profitseeking organizations to enter government service sectors is enacted for the primary purpose of improving the productivity of public resources (Sharkansky, 1980;Villalonga, 2000;Warner & Hefetz, 2008). Governments then, seeking the productivity gains associated with privatization, often allow rent collection by proprietary organizations while trying to manage the accompanying probity hazard (Bovaird, 2004;Cabral, et al, 2013;Laffont & Tirole, 1991). In short, both production costs and transactions costs matter.…”