Rehabilitated or Not?: To Release(?) is the Question

When parole boards learn whether inmates are rehabilitated by observing their behavior in prison, we show why they would release one inmate, while continuing to incarcerate another with a longer sentence, but who is otherwise observationally identical. This reflects that the longer a parole board has discretion, the more valuable is additional information gleaned from observing behavior. A consequence is that an increase in sentence length can lead to even greater increases in expected time served. We also consider the effect of increased sentences on inmates’ incentives to undertake rehabilitative effort. To encourage effort, sentences cannot be too short, but when inmates discount the future sufficiently, long sentences may also be undesirable. We show how different parole board priors can support multiple equilibria in rehabilitation effort, and investigate the effects of discretion restrictions like parole eligibility.