1 20th SIEP Conference University of Pavia September 2008 Evaluating the Efficiency of Italian Penitentiaries Fabrizio Balassone, Italian Ministry of Economy and Banca d’Italia Marco Camilletti, Italian Ministry of Economy Veronica Grembi, Catholic University of Milan Alberto Zanardi, University of Bologna

2 The Italian penitentiary system: main issues Italian prisons are over crowded. Over : – stark increase of inmates population (+22,2%) – prisons capacity almost stable How to tackle this issue? – 2006 pardon, but again overcrowding by 2008 (pop08=92.5% pop05) – alternative detention measures – increasing capacity by building more prisons Strict budget constraint → need to enhance efficiency But there is scant evidence on the economic performance of Italian prisons

3 Aim and structure of the paper This paper aims to empirically assess the technical efficiency of Italian penitentiaries - The Italian penitentiary system: main facts - Literature review - Our analysis: * data description * econometric model * estimation results - Conclusions: policy implications and future research

4 The Italian penitentiary system: main facts (1) The majority of facilities are located in the South

5 The Italian penitentiary system: main facts (2) - Average capacity higher in the North - Overall capacity higher in the South

6 The Italian penitentiary system: main facts (3) Overcrowding more marked in the North

7 The Italian penitentiary system: main facts (4) Prisons in the South tend to be over-staffed

8 The Italian penitentiary system: main facts (5) - Average cost of custody widely dispersed - Sharply declining with prison size: economies of scale or overcrowding?

9 Literature review (1) Limited work on empirical analysis of prison efficiency (A) Non-parametric approach (DEA) UK: Ganley and Cubbin (1992) - 33 prisons, 1 year - control for overcrowding (and other variables) - technical inefficiency accounts for 12% of expenditure US: Butler and Johnson (1997) - 22 prisons, 1 year - do not control for overcrowding - inefficiency accounts for up to 50% of expenditure

10 Literature review (2) (B) Parametric approach (cost and/or production function estimation) US: Trumbull and Witte (1981) - very limited sample - no frontier analysis - no prices - unexploited economies of scale IT: Panci (1999) prisons, 1 year - no prices - no control for overcrowding - 14% average inefficiency (higher in the South)

11 Data Source: Italian Department of Prisons Administration Information by prison over on: - outputs (number and attributes of inmates), - inputs (workforce and other expenses), - prices (salaries), - structural characteristics (capacity, opening date, conditions, etc.) 2006 legal pardon → structural break of the data, limitation of dataset to Outliers → 4.6% obs. dropped → 435 annual obs.

12 The econometric model - Short-term cost function (no capital input) - Log-Log specification (all variables normalized by their own average) - Several controls tried (on quality of inputs & outputs): none significant - No quadratic term - Stochastic frontier estimation for panel data (ML estimation) tc total costs (wages + other expenses) ti total number of inmates aw average wage of police units oc overcrowding index (number of inmates/normal capacity) v iid disturbance term u iid time-invariant truncated non-negative disturbance term → technical efficiency index

13 Estimation results (1) - All explanatory variables significant and signed as expected - Large average technical inefficiency (much larger without controlling for liia)

14 Estimation results (2) Unexploited economies of scale - controlling for overcrowding - even using inefficient technology

15 Estimation results (3) - technical inefficiency does not vary much across regions - technical inefficiency higher than average is related to: a) size b) police/inmates ratio c) overcrowding Area Avg. Inefficiency North West2,39 North East 2,57 Center2,40 South and Islands2,53 Low ineff.High ineff. Capacity Inmates Overcrowding Average wage Police/Inmate0.71.2

16 Concluding remarks Policy implications Most prisons are undersized w.r.t. optimal scale → long-term programme to increase the average capacity of prisons Large technical inefficiency of most prisons → possible short-term measures to overcome the most striking cases of over-staffing Future research Estimation of possible expenditure reductions stemming from closing small-size prisons and improving efficiency Robustness of results if more adequate proxies of output and input are used Check results against non-parametric estimates (DEA) Definition of output (functions other than detention)