Abstract
Conventional histories of residential services for mentally retarded persons in the United States explain the development of custodial care as the result of the failure of early residential schools to achieve their educational goals. Review of the historical evidence indicates that the conventional explanation is inadequate. An alternative explanation is suggested based on an economic model of the structure of the residential services industry. The economic model explains the decline of education and transition to low-quality custodial care in terms of economic incentives. Particularly important is the role of the mental retardation profession as monopolists of expertise regarding mentally retarded people and in rationing residential services to parents of retarded people. It is argued that the profession used its expertise monopoly to generate demand for residential services by portraying retarded persons first as in need of protection and later as a 'menace' to society.