What to Make of Social Impact Bonds

Source: Barbara Ray, Build Healthy Places, February 4, 2016

The method of evaluating success is at the heart of a big concern among skeptics. How do you ensure that the game is not rigged? Any banker will want to do due diligence before investing, but social science research is hardly airtight. For every issue, whether homelessness or asthma, multiple programs have been designed to address the problem. And there are multiple studies of those approaches, some more rigorous than others. While random control studies are the gold standard in measuring true impacts, they are expensive and not always ethical, given that the control group does not receive the service. Researchers, therefore, have devised other methods to test effectiveness, but these studies can introduce a lot of mushiness in the findings — as well as sometimes much larger effects than a random control study would find. As such, investors may lean toward the less rigorous approaches when documenting “success” because private investors want to do a deal that increases the guarantee of a payout. That is, they want to lower risk if at all possible.