Social Impact Bonds: Public-Sector Venture Capital?

The Washington Post recently reported on new interest in “Social Impact Bonds,” through which private investors can finance innovative social programs:

Connecticut, Illinois, New York, Ohio, South Carolina and Colorado won a competition initiated by Harvard ideaUniversity and the Rockefeller Foundation, which will provide them technical assistance with developing bond programs.

In the coming months, the states plan to write contracts for social service programs that taxpayers would pay for only if they prove to be successful. The initial outlays for the programs would be financed by private investors, who would reap a profit years later if the programs work as promised. . . .

. . . .The deals typically require investors to put money into programs operated by nonprofit groups with government contracts. The private investments would allow the programs to expand in ways that they would not be able to otherwise.

An independent evaluator would determine whether the programs have succeeded in achieving government savings and meeting the programs’ goals. If the programs are effective, they would create savings for taxpayers, and investors would benefit by reaping part of those savings. If the program fails, investors lose their money.

The full story is here.

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