Use of Social Impact Bonds to Address Social Problems: Understanding Contractual Risks and Transaction Costs
Pandey S, Cordes JJ, Pandey SK, Winfrey WF. Use of Social Impact Bonds to Address Social Problems: Understanding Contractual Risks and Transaction Costs. Nonprofit Management and Leadership. 2018;1–18. doi: 10.1002/nml.21307
38 Pages Posted: 15 Mar 2018
Date Written: March 12, 2018
Social impact bonds, a recent innovation in social finance, are designed to harness capital and knowledge from private nonprofit, for-profit, and public entities to address pressing social problems. Although there is great policy interest in understanding how social impact bonds can be used to tackle social problems, the emergent nature of social impact bonds makes it hard to find relevant data and evidence. To overcome this challenge, we use single-significant-case sampling as our research design strategy. We conduct an in-depth case study of the Social Innovation Financing Youth Recidivism project (SIF) in Massachusetts. Our case study is comprised of a qualitative analysis of the multi-party contract and multi-year quantitative benefit-cost analysis to understand transaction costs. We draw upon contract theory to develop an analytical framework for the case analysis and highlight the risks and safeguards for the various parties to the contract, and conduct a formal benefit-cost analysis to map out transaction costs. We conclude with a discussion of study implications and future research.
Keywords: pay-for-success, social impact bond, contractual hazards, contractual safeguards, benefit-cost analysis, transaction costs
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