Vital Signs: Victoria’s privatised quarantine arrangements were destined to fail



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Richard Holden, UNSW

Most people agree there are services government should pay for. Primary and secondary education, a dignified level of health care, emergency services and the military come to mind.

What is less clear is what services government should directly provide, and what it can safely contract out.

Past experiments in privatisation include the running of prisons and detention centres, and hiring private military contractors to guard embassies.

We have just witnessed a real-time experiment with the Victoria government’s hotel quarantine debacle.




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This week an inquiry headed by former Family Court of Australia judge Jennifer Coates began into failures in Victoria’s hotel quarantine system, believed to be responsible for Melbourne’s second-wave viral outbreaks.

But what can economics tells us about why this happened?

Thanks to the literature on “incomplete contracts” that led to a Nobel Prize for Harvard University economist Oliver Hart, quite a bit.

Using private contractors for hotel quarantine was destined to fail. It all boils down to a trade-off between costs and quality.

Using private providers is a good option when keeping costs low is more important than high quality. This was not such a case.

Incomplete contracts

Hart’s classic 1997 paper on “The Proper Scope of Government” (co-authored with Andrei Shleifer and Robert Vishny) mostly considers privatisation in theoretical terms, with some discussion of prisons, garbage collection, schools, health care, policing and a few other things.

The animating idea behind the “incomplete contracts” approach is that there are some contingencies that contracts, no matter how detailed, can’t cover.

This could be because parties can’t conceive of all future contingencies. Or perhaps they understand what’s at issue but it is hard to codify that in a way a non-specialist court could understand.

For instance, a famous legal case concerned the definition of a chicken, with the judge writing:

The issue is, what is chicken? Plaintiff says ‘chicken’ means a young chicken, suitable for broiling and frying. Defendant says ‘chicken’ means any bird of that genus that meets contract specifications on weight and quality …

Philippe Aghion and I expanded on incomplete contracts and prisons as well as many other applications in the Journal of Economic Perspectives in 2011.

To keep things simple, imagine there are two things someone running a prison can put effort into: reducing costs or improving quality.

Improvements in quality could involve increasing rehabilitation rates, reducing violent incidents and or minimising escape risks. Lower costs lead to lower quality. For example, employing fewer guards might result in more escape attempts or prisoner-on-prisoner violence.




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Cost versus quality

When the government owns the prison and employs a warden to run it, it doesn’t have to rely just on an written contract to get what it wants in terms of investment in quality. It can tell the warden what to do, and replace them if they don’t produce the goods.

If it’s serious about quality, though, the government will likely have to provide more resources. Quality costs.

When a prison is privatised, the government’s control over how the operator acts is limited to its contract.

In a perfect contract, the government could stipulate how much the private contractor is allowed to reduce costs and how much it must improve quality.

But these things are difficult to write into contracts. Wherever there are gaps, any contractor providing a fixed-price service will look to cut costs instead of improving quality.

So that’s the trade-off. When low cost is very important, private contracting is best. But when quality is more important, government ownership is optimal.

The Victorian quarantine

What’s more important in hotel quarantine during a pandemic: cost or quality?

The Hart-Shelifer-Vishny rationale tells us the Melbourne hotels should not have been policed by private security contractors, because the highest possible standards were paramount.

Moreover, even if one could write a complete contract, it doesn’t really matter. There’s no real recourse in this case for a breach of contract. The cost is billions of dollars in damage to the economy already. What good is a contract with a bankrupt contractor?




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Of course, police (and other public servants) aren’t always perfect either. But at least there is more training, a code of conduct, a sense of duty and a whole apparatus for disciplining misbehaviour.

The Coate inquiry may uncover valuable details about where and how the quarantine system failed, but economics can already point us to why it was destined to fail.

When high quality matters more than low cost, governments shouldn’t outsource unless absolutely necessary.

The choice for hotel quarantine should have been clear.The Conversation

Richard Holden, Professor of Economics, UNSW

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Muslims arrested on Christmas while trying to enter church


Two Muslim men were arrested on Christmas Day outside of St. Dominic’s Church, Bahawalpur, Pakistan, where on October 29, 2001 four gunmen entered the Church and opened fire and mercilessly killed 17 worshippers and a police guard, reports Anjum Paul and Dan Wooding, special to ASSIST News Service.

The two suspects were taken into custody by church security personnel as they tried to enter the church after the security men said they were “unknown” and “never been seen before in the church.”

A source told ANS that the men “failed to satisfy with their answers” when they were asked where they came from.

“First they said that came from Green Town Bahawalpur, but a Christian from that area said that they were not from there, and then they said that they came from Hasilpur,” said the source. “One of the suspects was holding a mobile phone and the security personnel were quite sure that the mobile phone could be used as a mean of communication with the other extremists to harm Christians being busy in their service.”

A Catechist, Sohial Nathaniel, said, “I stopped both of the Muslim suspects. I asked them to make a ‘Sign of the Cross’ and they failed to do so. They also failed to prove their residence in Bahawalpur where Christians reside. We then asked the police then to arrest them.”

Father Nadeem Joseph of St. Dominic’s Church told ANS, “The government should take strict action in this incident. This seemed to be a deliberate conspiracy. This brought to mind of when 17 Christians [and a police guard] were martyred in the same church by Muslim extremists in 2001.”

He went on to say that he was shocked when he visited the local police station on Christmas Day evening with a colleague from the church, Father Simon.

“I was astonished to hear from the Station House Officer, that both of the suspects had been released by him,” said Father Joseph.

“Due to terror by extremists, we had made all possible arrangements for the safety of the Christians. I appreciate the Christian security at the church that has really been a blessing for all of us, otherwise an incident like that that took place 2001, could have happen place.

“We are so sorry that they were released without us being told. The law and order situation here is bad and there is no improvement.

“The Christian clergy and community had already been threatened through mobile text messages when they were told that they would be targeted during Christmas. But, thanks to God, the church security and government agencies remained on high alert and no damage was caused anywhere by the extremists and terrorists at this Christmastime.”

Report from the Christian Telegraph

PAKISTAN: LAHORE – Sri Lankan Cricket Team Attack: Inside Help???


With the world still coming to terms with the cowardly attack by terrorists on the Sri Lankan cricket team and match officials during the second test in Lahore, questions are being raised concerning the disappearance of security during the attack and the ease with which the terrorists got away.

Many have long suspected connections between various elements within Pakistan’s military and security personnel, with terrorists operating within and without the country, even while Pakistan officially participates in the world alliance against terror. Events in Lahore during the second test have now fuelled these suspicions.

Match officials who were also attacked during the terrorist attack have raised serious questions about alleged security lapses before and during the attack, as well as questions concerning different travel arrangements on the day of the attack to those on the previous days of the test match – was there prior knowledge of an attack and were the Pakistan players shielded from the attack as a result?

Certainly there are some serious questions being raised and more than a few eyebrows are being raised concerning much of what occurred prior to the attack, during the attack and even after the attack, given the apparent ease of the terrorists escape and the casual nature of it.