The impact of social impact bond financing

Abstract

Social impact bonds (SIBs), also known as Pay for Success, are an innovation in Payment by Results contracting. Investors finance programs and are repaid based on the “SIB effect,” which includes changes in outcomes attributable to financing. We generate a quantitative estimate of this part of the SIB effect for two active labor market programs in the Netherlands and Switzerland. Comparing program impacts within providers using SIB and non‐SIB contracts suggests financing has positive impacts on public benefit receipt, employment, and income. Qualitative research suggests this is because SIB contracts increased pressure for all involved parties, leading to the institutionalization of selection and greater resources for SIB‐financed services. Contracts with high pressure, like SIBs, may compromise both performance requirements and the potential to measure performance. We examine the implications of these findings in relation to agency and stewardship theories and highlight the significance of SIBs as multilateral as opposed to bilateral contracts.

New insights on social finance research in the sustainable development context

“…On the other hand, during the first half of 2023, 44 studies were published, most of them related to the Islamic and SDGs relationships (Danlami et al, 2023;Shahid et al, 2023), social impact bonds Hevenstone et al, 2023), sustainable investments (Bannier et al, 2023;Osei et al, 2023), and social enterprises (Agrawal & Jespersen, 2023;Mahato et al, 2023). It is expected that, as in previous years, the studies published in the year's second half will be higher than in the first half, thus consolidating 2023 with figures equal to or better than those of 2022.…”

“…Source: Authors' own research using VOSviewer, as well as Scopus and WoS databases. (Berndt & Wirth, 2018;Hevenstone et al, 2023;Pandey et al, 2016.…”

Scholarly hypocrisy or apostasy in public administration: Preaching to the choir, or to an empty room?

“…Singla, Spreen, and Shumberger (2023) use staggered difference‐in‐differences analysis to show that emergency managers improve budgetary solvency and increase fiscal reserves for governments, even though long‐term solvency is not different than the counterfactual group examined. Hevenstone, Fraser, Hobi, Przepiorka, and Geuke (2023) explore the performance impact of social impact bonds, finding that high‐pressure contracts, such as SIBs, may compromise both performance requirements and the potential to measure performance. Finally, Roberts and Edwards (2023) explore historical and theoretical reasons for the neglect of portfolio management, and then suggest using portfolio management to update a classic strategic management framework to guide organizational choices in public administration by incorporating risk into investment decisions.…”