A Theory of Social Impact Bonds

29 Pages Posted: 7 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 4 versions of this paper

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.

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. IZA Discussion Paper No. 13431, Available at SSRN: https://ssrn.com/abstract=3643195 or http://dx.doi.org/10.2139/ssrn.3643195

Daniel L. Tortorice (Contact Author)

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

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David E. Bloom

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

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National Bureau of Economic Research (NBER)

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Paige Kirby

Data For Decisions LLC ( email )

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John Regan

Data for Decisions, LLC ( email )

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Waltham, MA 02451
United States

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