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Walking the contractual tightrope: a new academic study of social impact bonds
The academic journal Public Money & Management recently released a new paper by an assortment of researchers at Oxford University’s GO Lab, in which they take a transaction cost economics perspective on social impact bonds (SIBs). From the abstract:
The authors supply a framework for assessing the quality of outcomes specifications and clarify the trade-off between a robust value case for government and the transaction costs associated with specifying such a deal. Illustrated by two examples, the authors suggest that commissioners aim for a ‘requisite’ contract: one that minimizes opportunism while balancing the costs of developing a more robust outcomes specification.
And here’s a peek at the conclusion section:
… we applied TCE to two UK SIBs as a way of clarifying the trade-off between a robust value case for government and the TCs [transaction costs] associated with specifying an outcomes-based deal. A requisite contract in this context is one that minimizes the scope for opportunism by SIB suppliers—therefore increasing the likelihood of achieving best value for commissioners—while balancing the likely increased costs associated with developing and negotiating a tighter, more robust outcomes specification. Looking at the two UK SIBS, we have demonstrated that this balance may not always have been struck.
[…]
An important limitation of our work, however, is the rather linear view that an increase in the quality of outcomes specifications yields a corresponding decrease in opportunistic behaviour among SIB suppliers. Not only is this an oversimplification of commissioning in complex environments, it remains untested. Further empirical work will be necessary to test the performance of outcomes specifications across the dimensions explored here, in real-world situations. In particular, research should strive to identify policy domains that lend themselves to standardized well-specified contracts, and others that require a more ‘relational’ approach.
It’s all too easy to joke about the propensity for academia to conclude that “more research is needed” — but there’s perhaps no one better placed than the GO Lab to make that argument in the context of SIBs. The paper is free to access without institutional privileges, so why not take a look and make your own mind up?