In general, the debates between critics and advocates of private participation in prison service rely on arguments that do not incorporate performance and efficiency matters. The present paper explores the contributions of New Institutional Economics (NIE) for discussing the limits of public and private sectors in the construction, operation and management of prisons, which might be useful to public policies design. For that, the paper describes the current scenario of the Brazilian correctional system. Based on the NIE framework, the paper presents some theoretical propositions related to private participation in prison sector.