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

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 B razil. 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 S trategic M anagement S ociety.