A Theory of Social Impact Bonds

Daniel Tortorice, David Bloom, Paige Kirby and John Regan

No 17214, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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 from the government 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 various public programs include both these features, 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: Public goods; Fixed income securities; Impact investing; Social impact bonds (search for similar items in EconPapers)
JEL-codes: G12 H41 P16 (search for similar items in EconPapers)
Date: 2022-04
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Related works:
Working Paper: A Theory of Social Impact Bonds (2020)
Working Paper: A Theory of Social Impact Bonds (2020)
Working Paper: A Theory of Social Impact Bonds (2020)
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