Businesses that are protected from competition are characterized by unmet demand, low quality, and high cost; these conditions also characterize the prison business. State and Federal prisons operated in 1983, on average, at about 110-percent capacity; while 41 States and the District of Columbia have been ordered to remedy prison conditions, there is no money to pay for such reforms. Calculations of the cost of constructing a new prison are highly varialbe but range as high as $125,000 per bed. Two conditions may deflect the cost of spiraling prison costs. First, taxpayers are beginning to resist; second, private entrepreneurs are beginning to offer an alternative. Virtually all aspects of corrections are already subject to private contracting on a piecemeal basis. Only the idea of running entire, secure institutions completely under private contract is new. Privately operated facilities such as RCA's Intensive Treatment Unit in Weaversville, Penn., established in 1975, and facilities established for the detainment of illegal aliens have shown that the private sector's argument of being able to build and run prisons at lower costs is plausible. Major savings in personnel costs and in other areas could be achieved through contracting. Rigid legal obstacles to the private administration of prisons should be removed. Six notes are included.