A Theory of Social Impact Bonds

This working paper develops a theoretical framework for Social Impact Bonds (SIBs), defining their outcomes-based financing structure and the incentives for investors, service providers, and governments. Using descriptive statistics, the authors analyse contract design, risk-sharing, and implications for public goods provision. The paper concludes that SIBs represent a real innovation in public finance, expanding the set of implementable projects, particularly when governments are pessimistic about intervention success or averse to unfruitful project costs.