Difficulties in estimating actual operating costs of prisons, jails, and probation and parole services are noted, and differences among various means of estimating 1985 costs are cited. The distinction between operating and capital costs and the sorts of costs that ought to be included in correctional cost analyses are discussed, including amortization, financing, expenditures by other agencies, and fringe benefits and pensions. Results of a study of the difference between true costs of jailing and what correctional authorities perceive to be the costs are presented. Factors contributing to the rapid increase in correctional costs between 1971 and 1985 (an increase of 470 percent) are delineated. The impact of litigation on capital spending and operating costs also is discussed. The extent of variations in prison costs and causes of this variation are evaluated; and cost variation within a system is considered in terms of determining the optimal cost-effective facility size. The need for research into the costs of incarcerating and decarcerating additional offenders is identified. The accuracy of cost projections and factors that contribute to underestimation also are reviewed. 58 footnotes.