The Perverse Incentives of Punishment

Todd Entrekin, the sheriff of the small Alabama county of Etowah, recently found himself in the national spotlight when an Alabama newspaper discovered that over the course of three years he pocketed at least $750,000budgeted for feeding the people detained in his county jail. While the inmates in his jail ate meat from a package labeled “not fit for human consumption,” the sheriff bought himself a $740,000 beach house.

And it was all seemingly legal, thanks to a 1911 Alabama law that many sheriffs interpret to mean that whatever funds they don’t spend on their jails they can keep for themselves.

The story is horrific on its own terms, which is why the actions of a small-town sheriff — Etowah County has a population of about 100,000 people — quickly made national news. It is yet one more example of the almost countless ways in which our criminal justice system dehumanizes those it touches.

What happened in Etowah, however, highlights a deeper flaw in our criminal justice system. Much of the harm and destruction the system causes is exacerbated, if not often directly caused, by the complex web of financial obligations that criss-cross the convoluted morass of agencies that we too-simplistically call our “criminal justice system.”

Insufficient attention is given to how obscure contractual terms and budgetary decisions — things that fall fully within the responsibility of the public sector — shape how criminal justice actors behave. To be clear, values and attitudes matter a lot: Many officials inarguably view those who come within their control as undeserving of compassion, if not less than human, and treat them accordingly. But everyone from private prison managers to elected sheriffs to county commissioners also pay very close attention to the fiscal incentives they face.

In some cases, like in Etowah County, the incentive is clearly stated and transparently problematic. And there are examples from other states as well. Take Missouri. One prominent revelation in the wake of the Ferguson protests was the extent to which municipal officials encouraged various police departments across St. Louis County to impose fines in order to fundlocal governments.

Another example from St. Louis County, however, demonstrates how less-obvious contractual provisions encourage punitiveness. Following the Ferguson protests, prosecutors aggressively went after people who had participated in them, or just journalists who covered the protests, even as they dropped charges or kept losing cases. It would be easy to talk about aggressive prosecution or problematic desires to silence the press, but the explanation is far more contractual. Many municipalities in St. Louis County contracted prosecution services to local law firms (something that happens in about 15 percent of U.S. counties), and the contract didn’t include a cap on payments. More prosecutions, more money. Because local officials wrote bad contracts.

Similarly, with only a few exceptions, the attacks on private prisons generally miss the point, overlooking the significance of bad contract incentives to focus instead on the seeming evil of the “profit motive” — as if the $30 billion in wages and benefits going to public sector correctional officers isn’t a profit motive itself. But that’s a separate issue.

The conventional argument against private prisons runs something like this: States pay private prisons a per-prisoner per diem, and the prisons respond by cutting services and staffing and training and food in order to get their per-prisoner costs below that per diem. The people running the prisons then take their per-prisoner savings and invest them outside the prison, and lobby hard against reforms that would reduce prison populations, since that would cut profits. And the lack of staffing and training provide a second, more insidious benefit — they likely increase recidivism rates, which increases the number of people returning to prison and thus raises profits too.

This is an awful story. And it happened in Louisiana almost entirely without the help of private prisons. The state government paid local (public sector) sheriffs a per-diem to house state (public) prisoners in county (public) jails, and the sheriffs cut jail costs, diverted the savings to fund their (public sector) departments outside the jails, and lobbied against reforms.

Public sector officials behave exactly like private sector ones when given the same incentives. It’s the incentives, not the “profit,” that matter. So if we change the financial incentives people face, we may be able to get better outcomes. Pennsylvania recently introduced new contracts that reward private halfway houses that beat recidivism targets, and cancel the contracts of those who fall short; so far, they seem to be producing good results. Similarly, Australia just opened a private women’s prison with a strong recidivism provision in its contract, and the U.K. has done the same.

Not all of the fiscal incentive problems arise from explicit contract provisions, however. Sometimes they result from the baffling structure of our criminal justice system. In fact, what we call our “criminal justice system” is not a system, but rather a morass of city, county, state, and federal systems, all of which interact with each other in ways that are frequently perplexing at best, and incomprehensibly counterproductive at worst.

I don’t know to what extent the poor design of these overlapping institutions stems from intentional malfeasance, malicious indifference, or just genuine incompetence or inattention. My guess is that in many cases they arose haphazardly and unintentionally over time, and that no one has the interest or incentive now to try to fix them. But whatever their origin, and whatever explains their durability, they create terrible incentives that likely play major, but generally underappreciated, roles in driving the everyday failures and pathologies of punishment we see today.

Just look again at Alabama’s 1911 jail-food law, the product of a time when sheriffs lived in the jails, had their wives cook the prisoners’ food, and received no salary outside of the fees they could collect. It’s not like the state is unaware of the law’s problems; the legislature simply hasn’t been able to amend it. And while you might think the opposition comes from greedy county sheriffs looking to buy summer homes, the real resistance has come from the state’s association of county commissioners. The flip side of Alabama’s law is that while sheriffs get to keep any unspent funds, they are also personally liable for any shortfalls — and the county commissioners don’t want to assume that risk, even as some sheriffs actually push to fix the law.

In other words, the law persists because fiscal responsibility is fractured even within a county, and that creates strong incentives to make sure “someone else” has to take responsibility. Obviously greed and malicious indifference, if not actual malice, matter too, but the impacts of far-more-mundane fiscal obligations are quite significant.

A far more common example of how fractured responsibility encourages harshness and severity is what I call the “prosecutorial moral hazard problem.” Prosecutors, as reformers have started stressing in recent years, are mostly county-elected officials, who are mostly paid from county funds. Jails, too, are paid for by the county, as is often probation. Prisons, however, are paid for by the state.

This creates a powerful incentive to be harsh, since it is actually cheaper for a prosecutor or county-elected judge to charge or impose a felony sentence rather than a misdemeanor. A felony sends the defendant to state prison, and thus off the county books, while a misdemeanor would keep him in county-funded jail or probation.

California is the one state that has confronted this moral hazard problem in any serious way — and, quite tellingly, it alone is responsible for over half of the national decline in prison populations since 2010. One component of its complex realignment reform is that counties must now bear the cost of locking up certain less-serious offenders, even when they are convicted of felonies. Data indicate that this sort of cost-internalization has worked in the past, and it seems to be working now in California (with no real impact on public safety). Unfortunately, few states seem willing to follow in California’s footsteps.

This sort of moral hazard problem likely explains another policy failure, or at least an inefficiency, that we frequently see. The data is clear that policing is far more effective than incarceration at reducing crime, and yet we have over-invested in prisons, compared to policing (and many, many other interventions, including those outside the realm of law enforcement altogether). And at least one reason is surely that local officials have a strong incentive to push for tougher sentencing laws: They get to appear tough on crime for their local constituents while pushing the costs onto a different, and better-funded, level of government. The city would have to pay for more police, but the state picks up the tab for the longer sentences.

Now, there are some efforts to address these misaligned incentives. The Justice Reinvestment Initiative (JRI), for example, is trying to target some of these, by bringing state and local government officials together to work to shift funding away from what works poorly to what works better. But JRI is just a small part of the overall reform effort; in general, inter-governmental fiscal incentives, while quite important, seem to get far too little attention. Most reforms aim to change the basic criminal and sentencing laws, not the deeper sets of financial and political incentives that shape how police and sheriffs and prosecutors and others use the unavoidable discretion they will always wield.

But to end on a quirkily optimistic note, just as our failure to account for financial incentives causes us to miss a lot of problems, it also sometimes causes us to overstate them. Take civil asset forfeiture, which allows the police to seize property they think was involved in a crime (such as a car used to transport drugs) even if no one is convicted of the crime. Asset forfeiture is hated by reformers on the left and right alike, and it is often accused of encouraging police to target drug crimes just for profit.

There is much wrong with civil asset forfeiture, but its impact is likely overstated—again because of jostling, conflicting financial goals and obligations. In this case, the police do not determine their own budgets — those are set by local city and county legislatures and executives, all of which have a lot of funding obligations besides law enforcement. Two economists produced results that suggest these other agencies tend to cut police budgets to offset forfeiture earnings: For every dollar the police seize, subsequent budgets are offset by about 40 or 50 cents, sometimes almost dollar for dollar.

In many ways, I fear that these sorts of powerful financial incentives are distinctly treacherous because they are so technical and mundane. Often what is shocking and emotionally gripping is less important than the tedious stuff chugging away in the background, and so that tedious stuff gets a pass.

I saw this during the 2016 presidential primaries, when Hillary Clinton was attacked for her support for the 1994 Crime Bill whose provisions were provocative but whose impact was slight. Ignored in the debate over the Clinton legacy on crime was the far more significant Clinton-era Prison Litigation Reform Act (PLRA), which restricts prisoners’ ability to challenge terrible prison conditions in federal court by denying them the ability to sue until all “administrative remedies as are available are exhausted.” Bureaucratic issues like the “exhaustion of administrative remedies” is not a gripping topic, but these technical provisions of the PLRA enabled California to under-fund its prison system for years, to the point that the Ninth Circuit held that approximately 60 prisoners died from preventable deaths per year. The PLRA killed people, but the law received almost no attention whatsoever during the 2016 campaign.

The public-sector financial incentives are victims of the same inattention. They aren’t exciting to talk about, but their impact is real and powerful, and reformers need to direct far more energy toward changing them.