Am I overly cynical from years spent as a newspaper reporter
on the government beat, or are Social Impact Bonds, as described in the May 2012 McKinsey article, ripe for corruption or at least litigation?
This model is highly vulnerable for corruption because of
its design.
The so-called “independent” assessor is chosen by the
intermediary, who has a major financial stake in the outcome of the project.
Can an assessor chosen by the intermediary truly be independent? Of course not.
The stakes are incredibly high for the intermediary. Not
only does the intermediary receive a “performance payment” if the targets are
met, he also satisfies the investors, who otherwise would go unreimbursed.
If the intermediary’s project fails, he or she better find a
new line of work. Investors are unlikely to trust the intermediary after a
costly failure.
Under these circumstances, it is not hard to imagine the
service providers and/or the assessor fudging the numbers a bit to make sure
targets are hit.
Governments, which also have a financial stake in this,
might be prone to sue if there is even the slightest evidence that the numbers
are inaccurate.
Social impact bonds have some merit as a means of scaling up
behavioral-change projects. But they would have to be designed very carefully to
deal with the high potential for corruption.
Or am I being too cynical?
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