08 June 2016

PBR and SIBS: bring in tradability!

The Economist writes about Payment By Results (PBR) for public services in the UK, and cites these problems:

  • PBR can create strange behavioural incentives, including a phenomenon known as “creaming”. Given the emphasis on meeting targets, providers are often tempted to focus on the easiest-to-help people. 

  • In addition, the economics of PBR can work against innovation. Providers of public services must pay their employees and suppliers. It is difficult, especially for small firms, to wait around for a payment based on how they have done.  Pay up, the 'Economist', 4 June
It goes on:
The question, then, is not whether to get rid of PBR, but how to make it work better."
My suggestion? Make the contracts tradable. Then government can specify broad, much longer-term objectives which would encourage participation of a much wider range of potential service suppliers at every stage of the pathway towards goal achievement. Unlike under PBR there would be creative destruction of useless interventions and inefficient agencies.

The article also mentions Social Impact Bonds, of which there are now 32 in the UK and the most famous of which 'seems promising'. I have posted before about Social Impact Bonds, which, while I think they may be a much-needed improvement in neglected policy areas, would benefit greatly by being made tradable (and so becoming Social Policy Bonds, as I conceived them). You can now search this blog for keywords such as Social Impact Bonds, or see here and here for my short papers on them.

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