The State Government is considering a plan to give a cash bonus to a jail operator if inmates do not reoffend upon their release.
The bonus is one option on the agenda to entice private partners to operate the planned prison at Ravenhall, west of Melbourne.
The jail is set to open by 2017 and expressions of interest are expected to be called for within months.
Corrections Minister Andrew McIntosh says it is only a proposal at this stage, but it could ultimately help bring down the cost of the prison system.
"Of course if we can reduce the number of prisoners who come back into the system then we're saving the state a significant amount of money on top of that," he said.
"If we can reduce the crime rate, then the community at large also benefits.
"The community wins because recidivism rates will drop and therefore there is less crime - but most importantly of course, the state saves money because it's a very expensive exercise to keep a prisoner in jail."
In Victoria it costs about a $100,000 to keep someone in jail for a year and the costs to taxpayers are growing as the prison population expands.
Mr McIntosh says the bonus idea was discussed with groups who may bid to run the private facility.
"This gives us an opportunity during the tender process to see what innovative ideas the private sector can come up (with) to properly protect the community in a variety of ways," he said.
Shadow corrections minister Jill Hennessy says Labor supports programs that cut reoffending but she says they should be focussing on crime prevention by boosting things such as education spending.
"It's a good thing to target reoffending, but it's not a good thing to slash funding for the sorts of services that prevent people committing crimes in the first place," she said.
Critics, however, warn it will be a waste of money and won't help make Victoria's streets any safer.
Mr McIntosh says the idea has worked in New Zealand, but Greg Newbold, professor of sociology at University of Canterbury, says he is unaware of the New Zealand example.
"I haven't heard anything like that and I would have expected to have heard something about it - I'm pretty up-to-date with what's going on in the New Zealand corrections system."
Professor Newbold says while it is great to involve the private sector in operating prisons, this is not a good example of it working well.
"It's a dumb idea," he said.
"Certain types of inmate have a high chance of re-offending irrespective of what you do with them in prison, and other types of inmate have a low chance of re-offending irrespective of what you do with them in prison.
"So an astute private operator would be pushing to get low-risk offenders into their prison. The actual program has very little to do with it."
Professor Newbold says under this proposal operators would "get paid for nothing" as they take in low-risk offenders.
"I think it could be open to corruption because they would know well that the best way of getting their bonus will be to push for low-risk offenders," he said.
"It's easy to profile a high-risk offender as opposed to a low-risk offender, you can tell when they come into jail whether they're likely to re-offend."