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| Pay for Success | |
|---|---|
| Name | Pay for Success |
| Type | Social impact finance mechanism |
| Introduced | 2010s |
| Related | Social Impact Bond; Impact investing; Outcome-based contracting |
Pay for Success Pay for Success is a social financing mechanism that links payment for services to measurable outcomes, combining private capital, public agencies, nonprofit providers, and independent evaluators to fund programs. Advocates such as Gates Foundation, Rockefeller Foundation, JP Morgan Chase, MacArthur Foundation and policymakers including Barack Obama have promoted models that draw on expertise from Social Finance (UK), Bridges Fund Management, Goldman Sachs, and municipal leaders in cities like New York City, Chicago, Boston, and Salt Lake City.
Pay for Success arrangements bring together investors such as Calvert Impact Capital, Joseph Rowntree Foundation, Kresge Foundation, and European Investment Bank with service providers like United Way, YMCA, Cranbury Community Services, and evaluators exemplified by Mathematica Policy Research and RAND Corporation. Contracts are typically negotiated among payers such as state treasuries in California, Massachusetts, New York, or agencies in United Kingdom devolved administrations, and are structured with performance metrics defined by parties including researchers at Harvard Kennedy School, Brookings Institution, Urban Institute, and RAND Corporation. The model draws on prior innovations from Outcomes Fund, Development Impact Bond, and international initiatives in India, South Africa, and Australia.
Origins trace to collaborations among social entrepreneurs, philanthropists, and officials in the early 21st century. Pilots and demonstrations were influenced by work at Social Finance (UK) with projects in Peterborough (HM Prison), and by experiments advocated by Geoff Mulgan, Sir Ronald Cohen, Mark Kramer, and Owen Barder. U.S. federal interest grew during the Obama administration with initiatives hosted by United States Department of Labor, Office of Management and Budget, and programs sponsored by John D. and Catherine T. MacArthur Foundation and Laura and John Arnold Foundation. International adoption expanded through forums at World Bank, Organisation for Economic Co-operation and Development, and conferences hosted by Clinton Global Initiative and Skoll Foundation.
Core actors include outcome payers (e.g., state treasurer offices in New York and Massachusetts), service providers such as Goodwill Industries International or Community Action Partnership, investors including Goldman Sachs, Barclays, and philanthropic guarantors like Robert Wood Johnson Foundation. Evaluation often uses randomized controlled trials led by Abt Associates, Mathematica Policy Research, or academic centers at Harvard University, Yale University, University of Chicago, and London School of Economics. Payment triggers can be tied to metrics validated through administrative records maintained by agencies like Social Security Administration or education data systems in Los Angeles Unified School District, with legal agreements drafted by counsel from firms experienced with public procurement such as DLA Piper and Hogan Lovells.
Empirical assessments have been conducted by Harvard Kennedy School, Brookings Institution, Urban Institute, RAND Corporation, and evaluators like Mathematica Policy Research. Outcomes reported include reductions in recidivism in projects connected to HM Prison Peterborough and employment gains in workforce programs supported by Department for Work and Pensions (United Kingdom). Cost-benefit analyses by researchers at London School of Economics and Columbia University have compared measured savings to upfront investor returns provided by entities like Social Finance (US). Meta-analyses from World Bank and OECD highlight heterogeneity in results across health, housing, and criminal-justice domains.
Scholars and advocates at American Civil Liberties Union, National Education Association, Center on Budget and Policy Priorities, and European Network on Philanthropy have raised concerns about measurement, perverse incentives, attribution, and transaction costs. Legal scholars at Columbia Law School, Harvard Law School, and Yale Law School have debated procurement rules, sovereign budgetary constraints, and risk transfer when contracts interact with statutory frameworks such as United States Constitution fiscal clauses or procurement regimes in European Union member states. Practitioners from Nonprofit Quarterly and Independent Sector have noted challenges for small providers in meeting reporting burdens imposed by investors like Barclays or JP Morgan Chase.
Notable implementations include the Peterborough (HM Prison) social impact bond in the United Kingdom; the New York State Department of Health maternal-child health and homelessness projects supported by Goldman Sachs and Roca (organization), workforce initiatives in Utah with involvement from Social Finance (US), and early childhood programs in Chicago and Massachusetts linked to funding from Laura and John Arnold Foundation and JP Morgan Chase. Evaluations by Mathematica Policy Research, Abt Associates, and researchers at Harvard University and Columbia University provide detailed findings for these pilots.
Implementation depends on statutory authorities and procurement mechanisms in jurisdictions such as United States, United Kingdom, Australia, India, and Canada. Legislative initiatives in Massachusetts (state legislature), New York State Legislature, and policy memos from United States Department of Treasury and Office of Management and Budget have shaped permissible contracting approaches. International guidance has been discussed at World Bank Group forums, OECD working groups, and legal advisories from firms practicing in public-private partnerships such as Norton Rose Fulbright and Clifford Chance.