Dynamic Drivers of Successful Social Impact Bonds

Public goods and services, such as prisons, are often underfunded compared to private goods and services. Social Impact Bonds (SIB) are a new financial vehicle to increase the use of private funds for public good. SIB use a pay for performance structure to change a critical reinforcing loop from a vicious cycle of decay to a virtuous cycle of improvement. A a case study model of the Her Majesty’s Prison (HMP) Peterborough SIB is developed and analyzed to understand the roles of high leverage parameters and feedback loops in the SIB success or failure for the two primary participants (HMP system and SIB investors). Program effectiveness and unit program costs are found to be two high leverage SIB design characteristics. The analysis and model are used to make recommendations for both the owners and investors concerning SIB design.

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