by Matt Clarke

An academic study by a University of Pennsylvania professor published in November 2020 shows that mismatched economic incentives — local governments making sentencing decisions while the state government pays the costs of incarceration — are an important factor in increased incarceration. The study found that when the county is required to pay part of the costs of incarceration, the number of prisoners declines dramatically.

The study, authored by AurélieOuss, noted that, at 700 per 100,000 inhabitants, the U.S. has the highest incarceration rate among developed nations. Further, the U.S. criminal justice system is fragmented — in most jurisdictions, states fund the prisons but sentences depend on decisions made by the local police and prosecutors and judges elected or appointed at the county level. Thus, counties bear only a tiny fraction of the financial burden of the prison sentences they assign. Alternatives to prisons such as jail stays, house arrest, rehabilitation programs, halfway houses, and probation are typically paid for by counties or municipalities. Thus, the cost for imprisonment is minimal while more lenient sentences are costlier to local governments.

Few have researched the effect that cost structures have on law enforcement. Ouss and a collaborator designed a previously reported series of lab experiments to determine whether cost structure could influence punishment decisions (Ouss, Aurélie and Peysakhovich, Alexander, When Punishment Doesn’t Pay, J. Law Econ. 58 (3), 625-655). The experiments showed that individuals choose levels of punishment that exceed socially optimal levels when they bear only a small fraction of the overall costs. Punishment for the same crime was higher when costs were paid for by the public and lower when paid for privately. This led to the question of whether funding structure affected sentencing in criminal cases outside the lab.

The author noted a study that showed when costs of incarceration were transferred from local police to the prison authority in Israel, arrests dramatically increased. She discovered a similar natural experiment in the passage of California SB 681 in August 1996, which reformed that state’s financing of juvenile incarceration to increase the counties’ share of costs.

Prior to SB 681, counties paid a flat fee of $25 per month per juvenile incarcerated in a California Youth Authority (CYA) facility. SB 681 established a sliding scale, increasing the fee to $150 (5% of the actual per capita cost of incarceration) for juveniles convicted of the most serious offenses such as armed robbery or murder, $1,300 for serious offenses such as burglary, residential robbery or assault with a deadly weapon, $1,950 for moderately serious offenses such as second-degree burglary or car theft, and $2,600 for minor offenses such as a technical parole violation. SB 681 was intended to reduce the counties’ over-reliance on CYA facilities for less serious juvenile offenses. It was not intended to decrease punitiveness. California was in a cycle of strongly increased punitiveness at the time — including the passage of three-strikes laws. No other significant changes were made to California juvenile law in 1996.

Data from the National Corrections Reporting Program showed a dramatic decrease in commitments to CYA facilities as soon as SB 681 was passed. The study found a 42% decrease in the probability of being sent to CYA as soon as SB 681 was passed — even before it took effect. The number of 19-year-olds sent to prison during the same time period did not change significantly when SB 681 was passed. This suggests that the local authorities responsible for prosecuting and sentencing juvenile crimes responded to costs considerations, not some overall decline in prosecution.

More detailed information was available for Santa Clara and Orange County. It showed that the main driver of the decline was a significant increase in the number of cases being dismissed or diverted. This indicates that probation officers — who can recommend dismissal or diversion — are most likely to be responding to cost-shifting. Because they are funded and operate at the county level, probation officers may be especially sensitive to the relative costs and benefits to the county of various punishment options.

The study also found that local confinement was not simply substituted for CYA confinement. “More youth were kept out of incarceration altogether as a result of the change in costs. This suggests that prison subsidizing led to over-reliance on confinement, relative to its usage when costs were borne directly.”

The study also found that the decreased incarceration did not lead to an increase in crime. “There [was] no change in the number of juveniles being arrested for part 1 violent crimes, and if anything, a decrease at that time in the number of arrests for part 1 property offenses. ... There are no crimes for which there [was] a discontinuous increase in arrests after 1996.”

Police leniency was not responsible for the decrease in CYA commitments. There was no decrease in arrests and no increase in police dropping cases. Therefore, the study found that there was no benefit in terms of public safety from the increased use of incarceration due to misaligned incentives. “Placing the cost burden of prison on states instead of counties resulted in more money being spent for the same level of a public good — safety.”

This important paper shows that requiring counties to pay for even a small amount of the costs of imprisonment leads to lower rates of incarceration. This means that lack of fiscal accountability among the officials responsible for prosecution and sentencing is a driving factor in the current mass incarceration crisis and suggests an approach to ending mass incarceration — lobbying legislatures to shift part of the costs of incarceration to the counties. 

Source: Misaligned Incentives and the Scale of Incarceration in the United States by Aurélie Ouss, Journal of Public Economics, Vol. 191, Nov. 2020

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