Moral Culpability of Independent Contractors

30 October 2011 at 4:56 pm 5 comments

| Peter Klein |

Anita McGahan gave two fantastic talks last week on the economics and strategy of health care, including some work on intellectual property and pharmaceutical research and a larger project on public health around the world. At lunch Anita talked about her work with Joel Baum on private military companies. As we discussed, much of the literature on privatization and contracting out takes the focal organization’s objectives as given, then studies the least costly methods of meeting those objectives. But objectives are endogenous to production costs. Predator drones lower the cost of extrajudicial killings, so we get more extrajudicial killings, ceteris paribus. If prison privatization lowers the cost of incarceration, we should expect more incarceration. And so on. For this reason, the desirability of contracting out depends on whether we want more of thing that is being contracting out, a point made eloquently by Bruce Benson.

A related question is the extent to which contractors should be legally liable, not to mention morally culpable, for the outcomes they help facilitate. Most of us reject the Nuremberg defense, but how far are we willing to go? Is Xe partly responsible for US military strategy and tactics in Iraq and Afghanistan? Do private prison operators share some of the blame for the US’s astonishingly high incarceration rate?

See below for the classic discussion of this issue.

Entry filed under: - Klein -, Classical Liberalism, Law and Economics, Theory of the Firm. Tags: .

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5 Comments Add your own

  • 1. Joe Mahoney  |  31 October 2011 at 1:09 am

    Thanks for the articles, Peter. Both Anita McGahan and Bruce Benson are thoughtful scholars. I have never met the latter, but assume that you have. What ideas by him have been influential in your thinking?

  • 2. Peter Klein  |  31 October 2011 at 3:42 am

    Bruce’s work on the evolution of private law, e.g. voluntary commercial codes, has influenced my thinking on institutions. See some links here:

    http://organizationsandmarkets.com/2008/11/05/the-emergence-of-english-commercial-law/

  • 3. Michael Marotta  |  31 October 2011 at 11:04 am

    It is true that privatizing a government service does not address the basic question of whether the activity should be carried out at all. Libertarians would limit government to military, police, and courts, but even that could lead to “Unlimited Constitutional Government” if those within the state are dedicated to its expansion.

    Like Bruce Benson, I too have had third thoughts. Working in private security while completing degrees in criminology and social science, it seems to me that it would be best to exclude government from those areas – as we exclude it from any other business – and make government strictly and narrowly an agency of social welfare: minimum incomes, health and human services, etc.

    Moreover, on a deeper and more relevant point, prisoners are the moral responsibility of the government. The privatization of prisons is nothing less than slave trade.

  • 4. FC  |  2 November 2011 at 3:41 pm

    If the annual maintenance of a prisoner costs at least as much as I pay in taxes, am I therefore a slave?

  • 5. srp  |  10 November 2011 at 2:59 am

    It’s a damn sight easier to discipline a private prison operator for malfeasance than a public corrections bureau. Jim Wilson pointed that out years ago.

    Compared to their private competitors, the TVA pollutes with more impunity, Fannie and Freddie got away with shoddy lending practices more easily, Medicare allows more fraud and has less sound actuarial practices, public prisons are farther from following model penal codes, the National Forest Service does a worse job of conserving resources, and so on. It’s exactly what you’d expect if you thought about the incentives and constraints facing the people in these organizations.

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