Social Policy Bonds and Social Impact Bonds

Social Impact Bonds are a new financial instrument being developed in the UK by the Young Foundation and Social Finance. There is more about them here and here. They are similar to Social Policy Bonds in that they link rewards to success in achieving meaningful social outcomes. They appear to differ in that unlike under a Social Policy Bond regime, the contract to achieve the specified outcome would not be tradable. It seems that Social Impact Bonds would reward pre-selected organizations, or parts of pre-selected organizations for working efficiently: they would still have incentives to achieve the specified goal. They might even contract out some of the required work.

Compared with Social Policy Bonds, though, SIBs would be less tradable. There would be no transparent market for them. The composition and structure of the organization trying to achieve the outcome would therefore be fixed and pre-determined. Under a Social Policy Bond regime, on the other hand, the type, structure and composition of organizations working to achieve the target would be subordinate to the most efficient way of reaching it. This means, amongst other things, that broad, longer-term goals could be targeted. The identity of the organizations envisaged as benefiting from any efficiency gains under a SIB regime is another point of departure. They seem to be local authorities or other government agencies. It would appear, therefore, that gains from improved efficiency would be most likely to be remain with the agency and so, perhaps regrettably, be less motivating than direct financial incentives to employees.