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20th SIEP Conference University of Pavia

25-26 September 2008

Evaluating the Efficiency of Italian Penitentiaries

Fabrizio Balassone, Italian Ministry of Economy and Banca d’ItaliaMarco Camilletti, Italian Ministry of EconomyVeronica Grembi, Catholic University of Milan

Alberto Zanardi, University of Bologna

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The Italian penitentiary system: main issues

Italian prisons are over crowded. Over 1995-2005 :

– 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

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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

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The Italian penitentiary system: main facts (1)

The majority of facilities are located in the South

T erritorial distribution of penitentiary facilities by type (year 2005)

92 75 70

180156

39

39

0

50

100

150

200

250

North-West North-E ast C entre S outh andIslands

District Houses S entence S erving Institutes

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The Italian penitentiary system: main facts (2)

- Average capacity higher in the North- Overall capacity higher in the South

C ertified normal accomodation by Macroregion(year 2005)

0

50

100

150

200

250

300

North-West North-E ast C entre S outh andIs lands

0

3000

6000

9000

12000

15000

18000

Average Total

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The Italian penitentiary system: main facts (3)

Overcrowding more marked in the North

Overcrowding (average )

Index of overcrowding<0.5

(% of penitentiaries )

Index of overcrowding>1.2

(% of penitentiaries )North-West 1.5 1.9 78.5North-East 1.5 0.0 80.2Centre 1.2 4.6 53.2South and Islands 1.2 5.0 55.3Source: Ministry of justice

Penitentiary facilities distribution by Index of overcrowding and Macroregion (year 2005 )

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The Italian penitentiary system: main facts (4)

Prisons in the South tend to be over-staffed

Police/Inmate by Macroregion (year 2005 )

0.0

0.2

0.4

0.6

0.8

1.0

1.2

North-West North-E ast C entre S outh andIs lands

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The Italian penitentiary system: main facts (5)

- Average cost of custody widely dispersed

- Sharply declining with prison size: economies of scale or overcrowding?0

500

001

0000

01

5000

02

0000

0

Ave

rag

e ex

pen

ditu

re p

er

inm

ate

0 500 1000 1500

Inmates

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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

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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)- 189 prisons, 1 year- no prices- no control for overcrowding- 14% average inefficiency (higher in the South)

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Data

Source: Italian Department of Prisons Administration

Information by prison over 2003-2007 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 2003-2005

Outliers → 4.6% obs. dropped → 435 annual obs.

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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 inmatesaw average wage of police unitsoc overcrowding index (number of inmates/normal capacity) v iid disturbance termu iid time-invariant truncated non-negative disturbance term

→ technical efficiency index

uoc

ocaw

awti

titc

tciit

i tit

it

i tit

it

i tit

it

i tit

it lnlnlnln

3210

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Estimation results (1)

- All explanatory variables significant and signed as expected

- Large average technical inefficiency (much larger without controlling for liia)

ln ti^ 0.81*** (29.13)

ln aw^ 1.01*** (18.17)

ln oc^ -0.77*** (-24.66)

constant -0.87*** (-8.49)

Average inefficiency O bservations Number of G roups L og L ikelihood s igma u s igma v C hisq 1244

z s tatistics in parentheses *** p<0.001, ** p<0.01, * p<0.05

2.48

435

157

397.6

0.267

0.0415

x ̂= x/average(x)

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Estimation results (2)

Unexploited economies of scale - controlling for overcrowding

- even using inefficient technology

Averag e expenditure per inmate (2005)

05000

1000015000200002500030000350004000045000

25 150 275 400 525 650 775 900 1025 1150

Inmates population

lower bound central upper bound OL S

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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 West 2,39 North East 2,57 Center 2,40 South and Islands 2,53

  Low ineff. High ineff.

Capacity 199.2 216.1

Inmates 244.2 309.5

Overcrowding 1.3 1.4

Average wage 27107.8 26853.1

Police/Inmate 0.7 1.2

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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)