The Commission Paradox: Evidence from Prison Telecommunications

Marleen Marra, Nathan Miller and Gretchen Sileo

No 21635, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: When an intermediary procures services for end users and receives a commission from the provider, a tension arises: procurement designs that more effectively extract provider rents can simultaneously raise prices and reduce total surplus. We formalize this commission paradox in a first-score auction model and estimate the model using procurement data from the prison telecommunications industry. The paradox emerges empirically, as commissions reduce provider rents but raise call rates. We also find that when commissions enter the scoring rule, increased competition among providers raises payments to the correctional authority but does not lower rates. Banning commissions restores the link between competition and lower rates. Our estimates indicate that recent federal regulations banning commissions and capping rates would lower costs for incarcerated individuals while preserving provider profitability.

Keywords: Incarceration (search for similar items in EconPapers)
JEL-codes: D43 D44 H57 L13 L51 L96 (search for similar items in EconPapers)
Date: 2026-06
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