prison laundry would be good. Make a few quid on the side in some menial task. Also if youre implementing a gym system to increase inventory loads then possibly having a prison gym and a prison tattoo system might help the more "hardened" criminals - both of these systems should also occur outside of prison.
Lastly, please consider some of the best parts of Shawshank Redemption for prison inspiration. If I could get Rita Hayworth to visit me I would stay in prison for a LOT LONGER than an hour.
What about prison labour - work gangs - regular people can submit work orders to the state - cut lumber, mine ore etc - and the prisoner goes to a location in the prison to sign up for work. They work, (by this i mean they are teleported to the location where the work is carried out but they are blocked from leaving the area, or they can "work" in the prison and cut logs etc whatever way is easiest) they get a reduced sentence and the person who submitted the work order gets their wood/logs/etc from the government when it is ready to collect from the prison.
This way the prisoner works for something, the civilian gets a good source of cheap labour and another load of money can be drained out of the economy.
Edit below:
skip the teleportation bit. Ive rethought this out. I think I have a better idea.
The prison acts as a goods delivery hub for - uncut logs, unripened fruit and unsmelted iron ore. Gold and diamonds still go the regular way but iron comes into the prison. Wood currently has no sale value anywhere on the island other than to players within RP and possibly the very few store contracts that come up. This would give wood more of a purpose, same with fruit. Even prisoners need to eat.
So for example, apples and oranges (unripened) get bought by the prison for £20 each (just for ease of maths) and wood (lumber) gets bought for £50 each, Iron might fetch £50 each as well. It is a low risk (not getting robbed) low cash payout for new people into the city. If they smelt it themselves etc then obviously they get more but this is an RP thing.
Wood however doesnt really have much demand compared to the glut of supply. But if the prison is buying wood it creates its own sub-economy for the game. The prison could then SELL cut logs at a WAY higher price - £150 a cut log, this would help the stores to regulate their prices (player owned) and also give people who are too lazy to cut their own another place to buy them without paying through the nose and it would create a brand new economic system for the prison and the game.
Inside the prison inmates would be able to go to a specific area of the prison and stand and perform these menial tasks (smelting ore/cutting logs) in a prison workshop of some sort and for every minute they spend performing these tasks they can get an extra minute off their sentences. This would cut the sentences in half right out of the gate.
I think this would benefit everyone.
Prison in many games is treated TOO MUCH like real prison in my eyes. Prison should be a place where even deeper role play happens. People should make new friends in prison and hatch out plans there and all sorts of other stuff. It should be a productive use of the PLAYERS time even if its not a freedom for their character. As you said in the OP, people just stick netflix on and eat 10 apples. Id rather those players were still RPing that their character was a hardened criminal.
If you wanted to take it one step further, whilst these people were cutting logs and smelting the iron maybe they could "steal" a log or two or an iron bar and this could go into crafting a shank/digging implement of some sort to help them in their escape attempt. If they got caught doing this they might catch extra charges in prison and spend EXTRA time there or they might get an escape plan hatched and off they go to the real world. Maybe the PD guards that were suggested in the previous post would be able to intervene some how too. Im not a developer so I dont know which of this is in the realms of the possible and which should have stayed in my head but it sounds good so im gonna write it down.