Market failure is not just a theoretical concept. Think private prison.

 Slattery’s current company, Youth Services International, has retained and even expanded its contracts to operate juvenile prisons in several states. The company has capitalized on budgetary strains across the country as governments embrace privatization in pursuit of cost savings. Nearly 40 percent of the nation’s juvenile delinquents are today committed to private facilities, according to the most recent federal data from 2011, up from about 33 percent twelve years earlier.
Over the past two decades, more than 40,000 boys and girls in 16 states have gone through one of Slattery’s prisons, boot camps or detention centers, according to a Huffington Post analysis of juvenile facility data.
The private prison industry has long fueled its growth on the proposition that it is a boon to taxpayers, delivering better outcomes at lower costs than state facilities. But significant evidence undermines that argument: the tendency of young people to return to crime once they get out, for example, and long-term contracts that can leave states obligated to fill prison beds. The harsh conditions confronting youth inside YSI’s facilities, moreover, show the serious problems that can arise when government hands over social services to private contractors and essentially walks away.
Those held at YSI facilities across the country have frequently faced beatings, neglect, sexual abuse and unsanitary food over the past two decades, according to a HuffPost investigation that included interviews with 14 former employees and a review of thousands of pages of state audits, lawsuits, local police reports and probes by state and federal agencies.

Organaizational theory tells us that when outcomes are mufti-dimensional, it can be hard to structure contracts to ensure quality.  Hence the need for some sort of public provision (or vertical integration ) in that case.  Read the entire piece at the link below.
Prisoners of Profit - The Huffington Post