Jeffrey Liebman: Pay for Success Contracting Using Social Impact Bonds

Jeffrey B. Liebman, Malcolm Wiener Professor of Public Policy, Harvard Kennedy School.

In order to better understand how governments can foster social innovation and improve the results they obtain with their social spending, we, through the Harvard Kennedy School Social Impact Bond Technical Assistance Lab (SIB Lab), have been providing pro bono assistance to eight states and two cities that are developing pay-for success/social impact bond initiatives.

While several authors, including ourselves, have described the SIB concept in policy papers, there are fundamental aspects of these contracts that are ripe for more rigorous economic analysis:

Why is there underinvestment in social innovation and what government and market failures do SIBs potentially overcome?

What tradeoffs are involved in designing pay-for-success payout schedules?

How much risk is involved in these contracts and how should it be shared among contract parties?

How can evaluation methodologies be designed that are robust enough to allow millions of dollars to flow based on the outcomes of the evaluations?

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