A recent column by David Leonhardt in the New York Times begins this way:
Wouldn’t it be nice if taxpayers could somehow get a refund for government programs that didn’t work?
It sure would! Tell us more.
Lately, both American and British policy makers have been thinking about how to bring some of the competitive discipline of the market to government programs, and they have hit on an intriguing idea.
The idea goes by one of two names: pay for success bonds or social impact bonds. Either way, nonprofit groups like foundations pay the initial money for a new program and also oversee it, with government approval. The government will reimburse them several years later, possibly with a bonus — but only if agreed-upon benchmarks show that the program is working.
If it falls short, taxpayers owe nothing.
Leonhardt goes on to argue that though the idea has limits and will depend heavily on designing effective evaluations, it has great potential for encouraging effectiveness in social service programs. Read the piece.
One important thing to note about the Obama administration’s pilot effort is that the money is in fact being set aside now, rather than just promised for a few years down the line. This is not a buy-now-pay later scheme. Which means the concept should be replicable at the local level.