Social Impact Bonds in Nonprofit Health Care: New Product or New Package?

Mark Pauly, Ashley Swanson

NBER Working Paper No. 18991
Issued in April 2013
NBER Program(s):Health Care, Health Economics, Public Economics

This note considers a relatively new form of financing for social services, the "Social Impact Bond." Proponents of Social Impact Bonds argue that they present a solution to several problems in funding social services, including performance measurement and the distribution of risk. Using a simple model, we demonstrate that Social Impact Bonds have many features present in standard financing arrangements. They will lead to greater program success when investors' effort can positively influence outcomes, but are unlikely to do so otherwise. We conclude that the value of this funding innovation will be strongly context-dependent.

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Document Object Identifier (DOI): 10.3386/w18991

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