Prisons are independent states funded entirely through foreign aid and tariffs. Most happen to be totalitarian police states, but that's not an inherent property of prisons. A good prison would be a Libertarian's dream. Aside from the fact that you can't leave, but when's the last time a Libertarian has actually exercised that particular right?

In the end, the biggest drawback is the awful neighbors. The only reason they live there is because no other country was willing to take them.