Seeking Altruism: Evaluating Investor Incentives In Context Of The Social Impact Bond

Date
2019-05-01
Authors
Groves, Chandler
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Abstract

The Social Impact Bond is an innovative new impact investing model that allows private investors to match their invested capital with social impact goals while shifting the risk of non-profit program failure from the government to the private investor. These financial instruments sit at the intersection of public policy, financial markets, and the non-profit sector, and they hold the potential to redefine how society funds social programs. Existing academic literature regarding Social Impact Bonds has not comprehensively considered the goals of the private investor investing in these financial arrangements. As a result, this thesis aims to answer two questions: 1) why would impact investors commit capital to a Social Impact Bond, and 2) can Social Impact Bonds satisfy the goals of these investors? To answer these questions, I begin by identifying a conceptual framework for analyzing impact investors that focuses on the investors’ prioritization of financial and non-financial goals. I then describe the structure, history, and development of Social Impact Bonds as a new vehicle for funding social programs. After building this foundational understanding, I analyze the goals of private investors investing in Social Impact Bonds and discuss whether these new financial instruments can satisfy these goals. Finally, I conclude with a discussion of the long-term viability of the Social Impact Bond model and recommend changes to better tailor the instrument to match investor goals.

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