A Theory of Social Impact Bonds

27 Pages Posted: 1 Jul 2020

See all articles by Daniel L. Tortorice

Daniel L. Tortorice

College of the Holy Cross -- Department of Economics and Accounting

David E. Bloom

Harvard University - T.H. Chan School of Public Health; National Bureau of Economic Research (NBER)

Paige Kirby

Data For Decisions LLC

John Regan

Data for Decisions, LLC

Multiple version iconThere are 3 versions of this paper

Date Written: June 9, 2020

Abstract

Social impact bonds (SIBs) are an innovative financing mechanism for public goods. In a SIB, an investor provides capital to a service provider for a social intervention. The investor receives a return based on the outcome of the intervention relative to a predetermined benchmark. We describe the basic structure of a SIB and provide some descriptive statistics for these financial instruments. We then consider a formal model of SIBs and examine their ability to finance positive net present value projects that traditional debt finance cannot. We find that SIBs expand the set of implementable projects if governments are pessimistic (relative to the private sector) about the probability an intervention would succeed or if the government is particularly averse to paying costs associated with a project that does not generate offsetting benefits. As both these features are present in various public programs, we conclude that SIBs are a real innovation in public finance and should be considered for projects when traditional debt finance has been rejected.

Keywords: Fixed Income Securities, Public Services, Impact Investing, Social Impact Bonds

JEL Classification: G12, H41

Suggested Citation

Tortorice, Daniel L. and Bloom, David E. and Kirby, Paige and Regan, John, A Theory of Social Impact Bonds (June 9, 2020). Available at SSRN: https://ssrn.com/abstract=3623102 or http://dx.doi.org/10.2139/ssrn.3623102

Daniel L. Tortorice (Contact Author)

College of the Holy Cross -- Department of Economics and Accounting ( email )

1 College Street
Worcester, MA 01610-2395
United States

David E. Bloom

Harvard University - T.H. Chan School of Public Health ( email )

677 Huntington Avenue
Boston, MA MA 02115
United States
617-432-0654 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Paige Kirby

Data For Decisions LLC ( email )

11 Winthrop Circle
Weston, MA 02493
United States

John Regan

Data for Decisions, LLC ( email )

681 Main St., #3
Waltham, MA 02451
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
11
Abstract Views
198
PlumX Metrics