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

See all articles by Sheela Pandey

Sheela Pandey

Pennsylvania State University Harrisburg

Joseph J. Cordes

George Washington Institute of Public Policy (GWIP)

Sanjay K. Pandey

George Washington University - Trachtenberg School of Public Policy and Public Administration

William Winfrey

Centers for Medicare and Medicaid Intervention

Date Written: March 12, 2018

Abstract

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

Suggested Citation

Pandey, Sheela and Cordes, Joseph J. and Pandey, Sanjay K. and Winfrey, William, Use of Social Impact Bonds to Address Social Problems: Understanding Contractual Risks and Transaction Costs (March 12, 2018). 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, Available at SSRN: https://ssrn.com/abstract=3139263

Sheela Pandey (Contact Author)

Pennsylvania State University Harrisburg ( email )

777 W Harrisburg Pike
Middletown, PA 21042
United States

Joseph J. Cordes

George Washington Institute of Public Policy (GWIP) ( email )

805 21st Street, NW
Media and Public Affairs Building, Room 602
Washington, DC 20052
United States
202-994-5826 (Phone)
202-994-6147 (Fax)

HOME PAGE: http://www.gwu.edu/~pubpol/cordesbio.html

Sanjay K. Pandey

George Washington University - Trachtenberg School of Public Policy and Public Administration ( email )

805 21st Street, NW
Suite 601
Washington, DC 20052
United States

William Winfrey

Centers for Medicare and Medicaid Intervention ( email )

Baltimore, MD
United States

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