Social impact bonds: The goose and the golden eggs at risk

Abstract

Public goods and services such as prisons are often underfunded compared with private goods and services. Social impact bonds (SIBs) are a new financial vehicle to increase the use of private funds for public good. SIBs use a paid‐for‐success, performance‐based structure to reallocate risk and reward. In the current case, the SIB changes a critical reinforcing loop from a vicious cycle of decay to a virtuous cycle of improvement that can perpetuate SIB benefits far after the bond has been repaid. A simulation model of recidivism at Her Majesty's Prison (HMP) Peterborough and the related SIB is developed to identify high‐leverage parameters and dominant feedback loops. These are used to explain SIB success or failure for two primary participants (HMP system and SIB investors). Model analysis also reveals a tipping point structure that puts the Peterborough programme at risk. Contributions include a formal SIB model, improved understanding of SIB structure and behaviour, an example of tipping point structures in a social system and recommendations concerning SIB design and management.

Environment, Business, and Health Care Prevail: A Comprehensive, Systematic Review of System Dynamics Application Domains

“…Incorporating social system dynamics in the Columbia river basin was done in [201], where CLD was used to capture key variables of the food-energy-water system. Ford and White [202] focused on prison rehabilitation programs. Outputs of the simulation were used for the prediction of the prison population, meaning the number of prisoners returning to prison over 105 months.…”

Critical Success Factors, Motivations, and Risks in Social Impact Bonds

“…[30,34] Performance risk "Any risk that could cause a project to underperform and fall short of its outcome targets, implying loss of principal" (Tekolste et al, 2016, p. 2). [17,30,33,[37][38][39][40] Appropriation, credit or counterparty risk "Appropriations risk, also called credit or counterparty risk, is the potential that the end payer (typically a government) will not repay the investor if the project meets its outcome targets" (Tekolste et al, 2016, p. 8). [30,36] "Risk that the end payer (typically a government) will not repay the investor if the project meets its outcome targets" (GPRBA, 2019, p. 12).…”