In the aftermath of an official general pardon in 2006 Italian penitentiaries are struggling with overcrowding and budgeting problems. In order to identify the main causes of such difficulties we analyze an unbalanced panel of 142 Italian penitentiaries for the time period 2003-2005. A primary source of inefficiency is identified in unexploited economies of scale. In addition, estimation of a stochastic cost frontier highlights significant technical inefficiency, mainly attributable to overstaffing. Average prison size and technical efficiency are both smaller in the South than in the rest of the country.