When a government contracts with a private firm to supply a service previously supplied by the government, questions arise as to whether the private firm benefits from immunities that previously applied to government actors. In Richardson v. McKnight, the Supreme Court held that the employees of a private prison operator did not enjoy the immunity from section 1983 liability that normally is available to government actors. The Court recognized that resolution of this issue invokes assumptions about the incentives government and private firms face when supplying a particular service, but did not pursue the implications of the incentives that it assumed did apply, and failed to distinguish assumptions it had embraced in an earlier privatization case. We recognize that the privatization of governmental functions rests on contractual arrangements between governments and firms. We thus explore the consequences of different assumptions about what motivates the government actors who draft the terms of contracts for firms to supply public goods. Across a wide range of situations, and under different assumptions about motivation, these contracts are likely to provide for immunity. Nevertheless, we conclude that, under certain assumptions about the motivations of government actors, it would be appropriate to enforce a liability default rule. Such a rule may force government actors and the firms with which they contract to supply to the general public information that the contracting parties would otherwise keep private and that would generate inefficient contract terms.

Clayton P. Gillette & Paul B. Stephan, <em>Richardson v. McKnight</em> and the Scope of Immunity after Privatization, 8 Supreme Court Economic Review 103–139 (2000).