Social Policy Bonds and prediction markets

Oliver Milman writes: 

In the US, big online prediction markets like Kalshi and Polymarket are considering a new area of growth beyond mere sport and crypto: the climate itself. Kalshi recently reported 500% growth in weather and climate wagers over the past year, taking the market to a $1.1bn, and is now partnering with the Weather Company, which owns the Weather Channel, to boost its credibility in this new arena. Would you bet on the future of our planet?, Oliver Milman, the Guardian, 25 September 2026

In these prediction markets there are counterparties to the bets that people make so that, with some people hoping to see a reduction in the rate of climate change, there are others who will lose out if that happens. That, of course, differs from my conception of Social Policy Bonds, for which there is no such counterparty; rather the 'bettors' (actually, investors in the bonds) are aiming to benefit from a large sum of money, held in escrow, and paid out only when whatever social or environmental goal has been achieved. This sum could be made up of contributions from supranational bodies, national governments, corporations, philanthropists and the public, or some combination. So, rather than sit back and hope their forecasts about, in this example, the climate, prove correct, the investors in Climate Stability Bonds would have incentives to actually do something about achieving our climate goal. It is the difference between what investors pay for the bonds, and the redemption value of the bonds that motivates investors to help achieve the targeted goal. Rather than being passive holders of, essentially, a betting slip, as in prediction markets, a Social Policy Bond regime would turn bondholders into active investors, working to achieve socially desirable outcomes. 

Price signalling

There is one feature common to prediction markets and Social Policy Bonds: the useful information that markets generate. As Mr Milman writes:

A Kalshi spokesperson told me the company sees itself as part of “well-calibrated forecasting data” – essentially using the wisdom of the market to help predict how hot it will get, how bad floods will become and other such environmental outcomes.

The value of Social Policy Bonds would rise and fall, depending on how close potential investors think the goal they target is to being achieved. Their value could rise owing to holders' efforts to achieve the goal or because of events beyond holders' control. So, if Climate Stability Bonds are issued, and new research finds that the climate is changing more rapidly than people thought, then their value would fall. Factors other than those related to climate - interest rates - for example, would also affect the bonds' value. The market value of the bonds, and their changes over time, would be of great interest to policymakers. I write in more detail about this price signalling in Chapter 5 of my book, Market Solutions for Social and Environmental Problems, the text of which can be downloaded for no charge. 

Key criteria for a Social Policy Bond regime

We're a long way from the days of John Snow, who successfully traced the origin of a serious health problem - a cholera outbreak in London - to a single public water pump. Many of today's most urgent social and environmental problems have multiple causes and are beset by time lags, which makes it difficult to identify how best to solve them. One example: childhood obesity; it's just not amenable to the sort of painstaking analysis done by a single person, however brilliant. Policy today is generally a top-down, one-size-fits-all business, heavily influenced by powerful interest groups, within and outside government. As such, it is, in my view, incapable of dealing with our complex social problems effectively. A Social Policy Bond regime is my suggested way of encouraging people to research, experiment and refine the (most probably) multiple approaches to solving our problems. So: complexity is one attribute of a problem that's best addressed by Social Policy Bonds. Others are:

•         The problem can be solved only in the long term;
•       Existing policies are failing;
•          Diverse, adaptive approaches are going to be necessary;
•         Financial rewards to those involved in achieving objectives are uncorrelated to their effectiveness in doing so; and 
•      Progress toward solving the problem can be readily and objectively monitored.

Many social and environmental problems satisfy these criteria including, at the global level: conflict (war and all forms of political violence) and climate change; and at the national level: crime, unemployment and air and water quality. Other national goals that could be targeted for improvements are literacy, employment and health. I've discussed applications of the Social Policy Bond idea to all these problems, and more, on the SocialGoals.com website.

Closing the gap

This is the first section of a longer piece intended for publication. It will be followed by sections on: the need to express policy in terms of outcomes; and Social Policy Bonds

The gap between politicians and public 

There’s a large and growing gap between politicians and the people they are supposed to represent. This has always been true in autocratic countries, but it is now also a feature of democracies. I believe this stems from the increasingly opaque ways in which government works, such that the only people who can follow policymaking closely are politicians themselves, lawyers, well-off corporations or their lobbyists. Our policymaking process is so obscure, so unknowable by ordinary people that the alienation between politicians the public is inevitable. Whether this is intentional or not, is not the point; more important is that no politician wants to make it more transparent. Such a system is ripe for gaming and manipulation, but even when working according to the letter of the law, it inherently favours those who have the time and inclination to involve themselves - or their paid agents - in the minutiae of the policymaking process. Any link between what politicians say, and what ordinary people actually experience is undetectable.
Knowing this, we are reduced to choosing our representatives on the bases of their campaign promises, looks, ability to produce superficially convincing soundbites or, perhaps most portentous of all: identity. That is, those of the electorate who can be bothered to turn out to vote; the rest of us have taken on the learned helplessness that is characteristic of subjects that come to believe that their lives can neither be improved nor avoided. The result is clear, even in democracies: disenchantment with our leaders, mistrust and cynicism, and the disturbing drift toward authoritarianism and demagoguery.

I believe this his happening because our policymaking system focuses on concerns that have little obvious relevance to members of the public: institutional structures and funding arrangements, law changes, and macroeconomic abstractions. Oracular pronouncements of lofty goals are sometimes heard, but nothing can be pinned down and nobody takes them seriously. It is almost as if political systems the world over, whatever their origins, ere purposely designed to alienate the public. It’s hardly surprising then that there’s a strong demand for the sort of sloganeering that is often inflammatory and dishonest, but does at least express ordinary people’s concerns in language we can understand. 

The system’s complexity makes it difficult to share policy decisions and dilemmas with non-members of the political caste. As with any profession, as specialisation increases, so does the difficulty of communicating with the public. This matters more with politics than other professions with politicians, because their decisions affect all of us. The mistrust is mutual and self-perpetuating, so that now the most fundamental notion of policymaking - that all policy choices will create winners and losers - is never communicated to the public, because we’d see it as a lie or a self-serving admission of incompetence. We don’t trust politicians, we don’t understand their language, so why should they bother us with unpalatable truths? 

It’s essential, I believe, to close the trust gap, mainly because doing so would increase our buy-in to the policy decisions made on our behalf. The trust gap would narrow if people other than politicians, wealthy corporations and lobbyists could follow and have some say in the policymaking process. But the policymaking system’s opacity and complexity make it unattractive to people who work outside it. And one big reason for that, I believe, is that policy is formulated in terms that are of little interest to non-specialists. 

What money can't buy

The implicit target of almost all policymaking is to maximise either national income, expressed as GDP, or things that national income can buy. The weaknesses of GDP as an indicator of societal well-being are well documented. A huge flaw is that it fails to capture contributions to well-being for which there is no market. Hence:

No less fundamental than its source, then, are questions of the quantity of energy consumed, the ways in which it is distributed, and the purposes it serves. This issue of quantity versus quality has largely been ignored in mainstream environmental discourses — partly because the imperative to reduce total energy usage solicits [sic] no tech-driven solutions that money can buy. Not cool, Mireille Roddier, 'Places', September 2026

And:

Defensive medicine can be simply defined as medical responses undertaken to avoid liability rather than to benefit the patient. Billions for Defense: The Pervasive Nature of Defensive Medicine, Richard E Anderson, The Doctors Company, November 1999

In both cases the market fails society. In the first case by encouraging energy consumption that is excessive, in that environmental costs aren't captured by the market and so borne by society. In the second, the costs of excessive screening and treatment are similarly borne by society. 

A Social Policy Bond regime could reduce the costs to society of these market failures; it would do so by explicitly identifying our goals, and rewarding people for achieving them. A vital first step is to be explicit about exactly what we want to achieve. So, if energy consumption itself is seen as undesirable, we could reward those bring about its reduction. More likely, it's the environmental costs of energy consumption that we regard as problematic, and applying the Social Policy Bond idea to the environment would achieve that goal. 

Similarly, defensive medicine occurs because we do not explicitly target or reward improvements in society's health; mostly we reward medical interventions, and so incentivise their excessive use. Applying the Social Policy Bond idea to health would help solve this problem. A government could issue Tradeable Health Outcome Bonds, targeting an array of health indicators, each of which would have to fall within an approved range for a sustained period before the bonds would be redeemed. 

Social Policy Bonds express policy goals in terms of outcomes, rather than the alleged, and often very indirect, means of achieving them. Their aim is to encourage people to research, experiment and refine diverse, adaptive approaches to solving our long-term social and environmental problems; many of which are hugely important, but have been neglected because markets don't or can't address them. 

Risk aversion rules

The Economist writes about India: 

Bureaucracy runs on risk aversion. Officials worried about anti-corruption bodies award contracts to the lowest bidder, despite having the discretion to weigh up other factors. They splurge on top-tier consultants because it gives them cover for their decisions. A bureaucrat who takes a risk and produces a terrific outcome gets no reward. Why can't India's government build a decent website?, the 'Economist', 28 June 2026

Not much has changed since I began advocating Social Policy Bonds as a means of targeting outcomes. Politicians focus on institutional structures and funding. Bureaucracy, in India and elsewhere, prioritises process. Meantime public political debate is taken up with public images, sound bites, vague promises and identity. The result is government that is inefficient and ineffective, in that it prioritises narrow, short-term goals, while refusing to address urgent, long-term challenges such as budget deficits, environmental depredations, health and violent political conflict. One result is that the gap between government and people is widening in countries democratic or not, the world over.

The gap would narrow if more people participated in policymaking. One reason, I believe, why we're not very interested is that policy is formulated in terms that are difficult to relate to outcomes that are meaningful to natural persons, as distinct from corporate bodies. Policymakers appear to concern themselves with decisions about funding for different government agencies, dispensing patronage to big business and other lobbies, presenting themselves in the best light ... almost anything, in fact, except outcomes that mean something to real people.

A government that issued Social Policy Bonds would, from the outset, have to concern itself with social and environmental outcomes. Its main role would be to articulate society's wishes regarding social and environmental outcomes, and to raise the revenue that would fund these outcomes. Unlike most of the current determinants of policy, the language of outcomes and the necessary trade-offs between them is comprehensible to people other than politicians, bureaucrats, lawyers and public relations experts. For that reason, more people would be drawn into policymaking - an end in itself, as well as a means toward getting greater public buy-in to the resulting policies.

Expressing policy in terms of outcomes, and the consequent closing of the gap between public and policymakers would be one valuable benefit arising from a Social Policy Bond regime. The other would be the much greater efficiency in achieving social and environmental goals once the market, rather than a handful of politicians, decides who shall achieve these goals, and how they shall be achieved. 

 

World Peace Bonds - a guide for philanthropists

 This article was commissioned by Billionaire. I am uncertain as to whether it's been published

Incentives for peace: World Peace Bonds

World Peace Bonds are a way in which the market’s incentives and efficiencies can be channelled to those people who are most successful at reducing conflict. Philanthropists could get the ball rolling by contributing to a fund that would be used to redeem non-interest-bearing bonds only when world peace had been achieved and sustained for, say, thirty years. The aim is to encourage diverse and adaptive approaches to reducing or eliminating wars and civil wars. The bonds would reward the achievement of the peace goal, regardless of who achieves it or how they do so. The redemption fund could be swelled by philanthropists’ undertaking to match donations from others, including NGOs and the public.

The bonds would be issued on the open market. They’d fetch a fraction of their redemption value, because the peace goal is necessarily remote. But the bonds would be tradeable; their value would rise and fall as the market sees achievement of peace as more or less likely. Investors in the bonds wouldn’t have to wait for the bonds to be redeemed before benefiting from holding them: they’d do what they could to achieve peace, see their bonds rise in value, and then sell their bonds to those best placed to take the next steps. The bonds would always be in the hands of those who think they can do best to advance the peace goal quickly and at least cost. They’d form a tacit coalition, of variable composition, with the sole aim of maximising the reduction of conflict per unit outlay.

A long-term perspective, sadly missing from many of today’s peace-building activities, is essential. A lasting peace is more likely to be a just peace; the ceasefires and truces of today do little more than allow bad actors to inflame resentment and re-arm. Investors, knowing that sustained peace will be rewarded, would research, experiment and refine their peace-building initiatives, would concentrate on the most promising of these, and – something that doesn’t always happen today – would terminate those that achieve little.

The long-term outlook would encourage a wider range of peace-building initiatives than those that even well-meaning politicians undertake today. Investors in World Peace Bonds could lobby or work with governments to, say, change and enforce laws that make wars at home or overseas a less likely prospect. They could finance sports matches between potential protagonists, promote anti-war programmes on TV, or set up exchange schemes for students and schoolchildren. They could try to cajole the financial supporters of conflict into redirecting their funds along more edifying lines. They could offer poor countries different forms of aid, including education and scientific aid, and measures aimed at enlightening populations. They could co-opt, bribe, coerce or otherwise undermine those who foment conflict. They could facilitate liaisons between people of all ages of different ethnic or religious groups. The crucial point is that bondholders have more freedom and incentive to explore and carry out such diverse initiatives than governments or other international bodies, and more incentive to focus only on those that most promising.

Of course, there are many hard-working employees of existing public- and private-sector organisations who are already trying to achieve peace. But they typically have little funding or are not paid by results. Investors in World Peace Bonds would reward the most efficient of these bodies, allowing them not just to raise the salaries of their existing employees, but also to attract more expertise and more resources.

Powerful people in governments, religious institutions or militant organisations might resent the targeting of such objectives by external agencies in this way. They might not be swayed by bondholders’ efforts to influence them – but many of their followers will be. As well, under a World Peace Bond regime they would have to openly declare their opposition to peace itself. It is precisely this focus on the outcome of peace -- rather than activities or institutions -- that would help mobilise and strengthen the coalition working to achieve it.

Humankind’s ingenuity is boundless but too much of it, reacting rationally to the incentives currently on offer, is channelled into such socially dubious activities as advertising dogfood or – God help us! – technical analysis. Actually, it’s worse than that: the incentives now are for those few who have acquired power – including psychopaths, kleptocrats and fanatics - to do whatever they can to retain and extend it, and if that means they must inflame conflict then they will do that. The result is the world we see today: a world wherein sixty major armed conflicts rage; killing, maiming, starving and making millions homeless. And all the while there looms the possibility of nuclear catastrophe.

In such a world, the wishes of the billions of people who don’t want to live in a world of conflict are too diffuse to prevail, and we cannot rely on politicians anywhere to change that. World Peace Bonds would bypass politicians and, by appealing to investors’ self-interest, could bring about the humankind’s most yearned for, but most elusive goal: the permanent elimination of armed conflict.

For more on applications of the concept, please see http://SocialGoals.com.

© Ronnie Horesh April 2026

Sleepwalking into nuclear war

 Antiwar.com describes the US military's latest brainwave: 

The Pentagon is reportedly drafting a new nuclear strategy that’s expected to emphasize the use of tactical nuclear weapons to give the president more “options” in a potential nuclear conflict. The strategy... is being drafted by the Pentagon’s policy chief, Elbridge Colby, who has for more than a decade called for the US to develop additional capabilities to fight a “limited nuclear war.” The idea would be to shift the US nuclear strategy away from the focus on using strategic nuclear weapons to wipe out an adversary’s nuclear capabilities and focus more on the possibility of using smaller, tactical nuclear weapons in a “regional” conflict. Pentagon drafting new nuclear strategy..., Dave DeCamp, Anti-war.com, 9 August 2026

The logic is impeccable; each step can be fully explained by invoking the current situation and fears about what others might do. But the stakes now are impossibly high. It's surely worth trying something more radical than the processes that have led us to the brink of catastrophe. 

There are good, hardworking people working for organisations that have as their ostensible aim the ending of conflict at all levels: global, regional and local. But those best placed to know reckon we are closer than ever to nuclear conflict. The Pentagon's new strategy could take us even closer. We need to do things differently. 

Nuclear Peace Bonds could help halt the drift towards nuclear conflict, by putting in place a system that encourages and rewards people for researching, implementing and refining the most promising of such alternative approaches. The would inject the market's incentives and efficiencies into the achievement of nuclear peace, sustained for a period of at least thirty years. 'Nuclear peace' could be defined as a period during which the number of people killed within 24 hours by the detonation of a nuclear device is less than (say) 500. The bonds would reward those who achieve such a sustained period of nuclear peace, whoever they are and however they do so: only the outcome would be stipulated. 

As well as pursuing activities the exact nature of which we cannot anticipate, investors in Nuclear Peace Bonds could do things that cannot be done by existing organisations, constrained as they are by precedent, and their perceived need to maintain their existence and so satisfy the bodies that fund them. So, for example, in today's world, nobody would have any incentive to bribe people close to decision makers in politics or the military to advocate nuclear disarmament. Likewise, an existing body is unlikely to try to get religious extremists to tone down their rhetoric or take up golf, even if it believed that were the most efficient way of reducing the probability of nuclear conflict. The risk and consequences of exposure and backlash are too great for current institutions to bear. Holders of Nuclear Peace Bonds, however, would not be deterred from whatever actions they think most effective: funds to redeem their bonds could be held in escrow. Once nuclear peace had been achieved and sustained, their reward would be guaranteed. 

Investors in the bonds could operate in parallel with existing bodies. They might decide that some of their activities are worthwhile and channel more funding into the most promising of these. Or, as with the bribery example, they could pursue radically different approaches. The main point is that all the investors decisions would be entirely directed to sustaining nuclear peace at least cost. Their goal would be exactly congruent with society's, and their funding would attract resources and expertise away from some  well-rewarded activities of little social merit. Advertising dog-food or writing algorithms for high-frequency share trading are two examples; there are many others. 

The Social Policy Bond concept, of which Nuclear Peace Bonds are on application hasn't gone very far in the decades since I came up with it. A non-tradable version is now in use in about 25 countries, but it's inherently limited as a means for achieving long-term goals, for reasons that I've explained here and here. I still hope that my original concept will be deployed, as I don't think we are currently on track to meet such huge and urgent challenges as nuclear conflict. 

Everything is backwards...

 A quote attributed to Michael Ellner: 

Just look at us. Everything is backwards, everything is upside down. Doctors destroy health, lawyers destroy justice, psychiatrists destroy minds, scientists destroy truth, major media destroys information, religions destroy spirituality and governments destroy freedom. Michael Ellner

It's not true in every case, and it's not inevitable, but there's enough truth in it to be disturbing. And, while there are many idealistic doctors and lawyers, the majority become fully invested in their career and dependent on the goodwill of their governing body. And these bodies have, as their overarching goal, self-perpetuation, whatever their original ideals. All their ideals, activities, memberships and rules are subordinate to that goal.

Which is why I believe we should make policy as if these institutions do not exist. Under a Social Policy Bond regime, policy would be expressed in terms of verifiable, transparent outcomes, and any institutions that come into being as a result would have, as their sole focus, the efficient achievement of these outcomes. Such a regime would be ideal for those social and environmental goals for which:

• current policy is failing,
• a long-term view is essential,
• no obvious solutions exist, and
• a range of diverse, adaptive approaches is likely to be essential.

Sadly, there are many big, urgent challenges that satisfy all those criteria. For example, I've written about applying the Social Policy Bond concept to nuclear peace, climate change, and health. These policy areas would all benefit by, first, clarifying exactly what we want to achieve; most likely a set of subsidiary objectives all of which would have to be met before the targeted outcome would be deemed achieved. Second, by channelling the market's efficiencies and incentives into that achievement. What would happen then? With a guaranteed payout on success, investors would compete to bid for the bonds; collude, tacitly or otherwise, to bring about speedy achievement of the goal. This would entail research, experimentation and refinement of a range of possible approaches toward solving the targeted problem, with only the most promising of these approaches being pursued. A mosaic of diverse and adaptive approaches would be the most likely result. I believe a new sort of organisation would arise: again, it might not be a formal body, but its structure and composition, and all its co-ordinating activities would be entirely subordinate to achieving the targeted social or environmental goal. Thus, there would be an inextricable link between the objective of the organisation and society's targeted goal. 

'The ticks are winning': we need to focus on health outcomes

Jonathan Mingle and Sean Rameswaram discuss the tick problem in the US:  

Are we not fighting back against the ticks?

Not really. I mean, this is one of the surprising takeaways from my reporting is that we’re barely even trying. One way of understanding that is to think about two numbers. One number is 90 percent. 90 percent of vector-borne disease cases in the US are from ticks.

90 percent?

Yeah. And yet despite the fact that 90 percent of cases of vector-borne illness come from tick bites, if you look at what local city and county health agencies do in terms of vector control, 80 percent of what they do is mosquito control, and only about 10 or 11 percent of these local health agencies around the country do any kind of tick control. So why is that? It’s a familiar story in the public health world. It’s not enough funding or policy support for trying out, testing, and deploying new approaches to controlling ticks. The ticks are winning, Danielle Hewitt and Sean Rameswaram, 'Mother Jones', 1 August 2026

...Or a lack of incentives. This kind of mismatch between the a problem and the incentives devoted to solving it bedevils all policymaking in areas where existing institutions have no incentive to explore new approaches. It's rife in the field of health policy, where those in the profession have little incentive or capacity to think beyond their speciality, and so advise policymakers accordingly. 

Given the widespread, and justifiable, distrust of pharmaceutical companies, it would seem that this is the time to move towards rewarding those who achieve favourable health outcomes, rather than those who merely engage in activities purporting to deliver those outcomes. Those currently employed in healthcare are reacting rationally to the incentives on offer, to the detriment of our physical and mental health. And those incentives are to keep funding existing bodies and their approaches; as well, they encourage over-screening and over-diagnosis. 

It's time for a new approach. My suggestion is that rather than policymakers' focusing on the means by which they think good health can be achieved, they instead focus on targets for good physical and mental health, and provide incentives for people to achieve those targets. The Social Policy Bond concept, applied to health, would do this, and more: it would inject the market's incentives and efficiencies into all the processes necessary to improve a nation's health, regardless of the vested interests of the current service providers. A short piece on Health Bonds can be found here, and a much longer version, describing Tradeable Health Outcome Bonds is here. A bond regime would channel our scarce resources into the most efficient means of improving our health, including those currently neglected or not even considered by our current healthcare bodies. 

Health Bonds wouldn't stipulate how our health goals shall be achieved, nor who shall achieve them. This allows a broader approach. For example: if ticks are agreed to be a much bigger threat to health than mosquitos, then a bond regime would channel more resources into dealing with ticks rather than mosquitos. More broadly, our current narrow, short-term compartmentalised policy approach would not look into the positive health impacts of subsidising advanced courses for young drivers of motorbikes or cars. But holders of Health Bonds would look at such measures, investigate their possible health impacts, and make an informed decision as to whether any improvement they might bring to a population's health is worthwhile, compared to other possible interventions. 

Policymakers in general take the existing institutions, with their limited purview, as a given. An outcome-based approach, such as I envisage in a Social Policy Bond regime, would subordinate the composition, structures and all activities of institutions to the outcomes that policymakers target. For more on the new sorts of organisation that this approach would generate, please see here. 

Social Policy Bonds and price signalling

 One of the less obvious benefits of a Social Policy Bond regime arises from the price signalling of the market for the bonds. At flotation, the bonds would be auctioned, and difference between the sums raised at flotation and the total redemption value of the bonds would supply the market's best estimate of the cost of achieving the targeted goal at that time. This estimate would vary over time, depending on many factors including bondholders' performance in undertaking or financing goal-achieving projects. The market for Social Policy Bonds, then, as with all markets, plays a vital role not only in allocating resources but also in signalling to the bonds' backers the approximate costs of achieving social goals. The bonds' backers, that is, those who put up the funds for redeeming the bonds, could be in the public or private sectors: either way, this information is of great value. 

A competitive market for Social Policy Bonds would minimise the total cost of achieving a specified objective, as well as signalling it. More subtly, and more technically, it would also indicate the marginal cost of achieving further improvements. Say one million Crime Reduction Bonds issued by a local authority were to sell for $5 each. This would tell the issuing body that the present value of the expected maximum cost, including bondholders’ profits, of reducing the crime level from, say 50 to 40 units, would be $5 million. The local authority might then suppose that it could afford to be more ambitious, and aim for a further fall to 30 units. It could issue a million additional bonds redeemable when this new lower rate were reached. These would (probably) have an initial market value of less than $5, reflecting the (probably) diminishing returns involved in preventing crime. The point is that, by letting the market do the pricing of the bonds, the local authority would be getting an informed view of the marginal cost of its objectives. So if the bonds targeting the new level of 30 units were to sell for $4 each, then the maximum cost of achieving that objective would be $11 million, being equal to: $5 million (paid out when the level fell from 50 to 40 units) plus $6 million (paid out when the level fell from 40 to 30 units). The marginal cost of a 10-unit drop in crime would thus have been revealed to have risen from $5 million to $6 million. Should the local authority aim for a further fall to 20 units? Following such crime rate-targeting bond issues it would have robust information about the cost of doing so.

This is, of course, a simplified example and in fact the bond market would continuously update its pricing information. Say that new research, of the sort that might be stimulated by an initial bond issue targeting crime, suggested new ways of reforming or deterring criminals. Bondholders may, for example, have financed successful research into more effective reform programmes, or set up more appealing alternative lifestyles for especially hardened criminals. How would the market react to such developments? Once their effectiveness had been revealed, the value of all the bonds would rise. Instead of being priced at $5 and $4, the two crime reduction issues of the example might sell for $8 and $7. The total cost to the government of redeeming these bonds would not change: it would remain at $11 million (though redemption would most probably occur earlier). But the market would be generating new information as to the likely cost of future reductions in the crime rate. The market would now be expecting reductions of 10 units of crime to cost $2 million (from 50 to 40 units), and $3 million (from 40 to 30 units). The new research would have reduced the costs from $5 million and $6 million (respectively). So the cost of any further crime reductions would also fall, and by following market price movements policymakers could gauge approximately by how much. 

These figures are hypothetical, but they do indicate the role that markets for Social Policy Bonds could play in helping the government, and taxpayers, decide on their spending priorities. The market for the bonds is elegantly efficient in conveying information about the cost of achieving objectives and, crucially for policymakers, how this cost varies with time and circumstances. I discuss this in Chapter 5 of my book.