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A Theory of Social Impact Bonds

Author

Listed:
  • Daniel L Tortorice

    (College of the Holy Cross)

  • David E. Bloom

    (Harvard TH Chan School of Public Health)

  • Paige Kirby

    (Data for Decisions, LLC)

  • John Regan

    (Data for Decisions, LLC)

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.

Suggested Citation

  • Daniel L Tortorice & David E. Bloom & Paige Kirby & John Regan, 2020. "A Theory of Social Impact Bonds," Working Papers 2001, College of the Holy Cross, Department of Economics.
    • Handle: RePEc:hcx:wpaper:2001
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    File URL: https://hcapps.holycross.edu/hcs/RePEc/hcx/HC2001-TortoriceBloomKirbyRegan_SIB.pdf
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    References listed on IDEAS

    as
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    8. Mark V. Pauly, 2017. "Social Impact Bonds: New Product or New Package?," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 33(4), pages 718-760.
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    Cited by:

    1. Paweł Mikołajczak, 2023. "Comparative study of social impact bonds – capital per beneficiary and scheme duration," Bank i Kredyt, Narodowy Bank Polski, vol. 54(2), pages 191-220.
    2. Meg Adachi-Sato, 2021. "Contract Duration and Socially Responsible Investment," Discussion Paper Series DP2021-14, Research Institute for Economics & Business Administration, Kobe University.
    3. Meg Adachi-Sato, 2021. "Socially Responsible Investment: Ex-ante Contracting or Ex-post Bargaining?," Discussion Paper Series DP2021-20, Research Institute for Economics & Business Administration, Kobe University, revised Feb 2023.

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    More about this item

    Keywords

    Fixed Income Securities; Public Services; Impact Investing; Social Impact Bonds;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

    NEP fields

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