David Bank writes that:
Social impact bonds have been bedeviled by complex structures and measurement difficulties, not to mention the thorny social problems themselves.It's much as I have written here and here: because the bonds aren't tradable, bondholders will focus on approaches that will reach their end-point some time in the near future. In order to benefit from the success of their bond-achieving projects, they will have to own the bonds from flotation to redemption. This greatly diminishes the scope of the projects, and also means that inherently long-term goals cannot be targeted. When we have such small objectives, the costs of monitoring progress toward or away from their achievement is going to be a higher proportion of the total administrative costs than they would under a regime that could target broader goals. It's almost as easy (or not much more difficult) to monitor national crime indicators, say, as to look at the behaviour of group of a few hundred specific ex-
In the same piece, Mr Bank quotes Tracy Palandjian, CEO of Social Finance US, a leading social impact bond developer:
What has surpassed my expectations, and why the work is so hard and the impact so enduring, is we are changing mindsets. We are changing how government officials think about problems.Contracting out the solution of social problems and payment for results are two essential elements of the Social Policy Bond idea as I envisaged it, and SIBs incorporate these. Where SIBs fall short, though, is that without tradability, not only is the range of solvable problems limited, but the market's efficiencies in resource allocation cannot be realised. Another possibility is that they can be more readily gamed and manipulated - especially likely, I believe, once their novelty has worn off and they disappear from public scrutiny. I'm therefore ambivalent about SIBs. They might be an essential stepping stone on the way to a pure Social Policy Bond regime. But their limitations and flaws might discredit the Social Policy Bond concept. For the record, I haven't been involved in any SIB projects.