To diffuse or not diffuse... that is the question

If Social Impact Bonds have as much potential as rhetoric suggests, why haven’t they diffused more frequently?

1) Results of social impact bonds can be hard to measure as measures of success chosen at the beginning of the project may show an incomplete picture of the social landscape intended for change. Suppose a social impact project focuses on getting high school students to enroll in college. The project is a success if 80% of the students served enroll in college.

However, there are is one major issue with the above success metric:

A.     For students who enroll in a two-year or four- year college, and do not finish, the project should not be considered a success. Students who do not finish college rack up debt from attending but have limited job options to help pay back the debt. In this scenario the student with only a partial degree is arguably worse off, even having achieved the benchmark for the program, enrolling in college. To measure the success of this college enrollment social impact bond program more effectively, there should be checks to make sure students graduate from college and graduate on time. Furthermore, it would also be useful to include a metric on loan defaulting. Using loan default rates as a metric would capture people that don’t graduate and are unemployed or underemployed. This would also capture people who did graduate on time and are underemployed or unemployed.

Beyond the issue highlighted in example 1, there is another issue that may prevent the diffusion of social impact bond related projects. 

2) Social Impact Bonds are logistically complex because of the number of parties involved (government, third party project facilitator/ investor, non profit) and the complexity of managing both the project and the relationship between all involved entities. This complex relationship results in large administrative overhead in order to keep the project running. Administrative overhead is a large expense, which could make sense for the project, if the overall expenses can be offset by significant savings from running the project as a social impact bond, rather than some other kind of project set up. [1] Also, the extra administrative fees might only make projects only financially feasible at a large scale. This might discourage participation in smaller scale social impact bond projects, like the pilot projects necessary for an idea to grow.   

---

[1] https://wws.princeton.edu/sites/default/files/content/Social%20Impact%20Bonds%202014%20Final%20Report.pdf