Can early release both reduce prison costs and increase deterrence?

The disutility criminals receive from prison varies. Earning early release requires effort which can be used to separate those with the highest disutility from others. Savings from those released early can be used to finance longer prison sentences for others. •Shows how early release can be used to increase deterrence and reduce prison costs.•Assumes prisoners differ in their distaste for prison.•Distaste is unobservable at time of sentencing.•Earning early release is a signal of distaste for prison.•Those who dislike prison the least serve the longest sentences.