Private Investment in the Public Good: Social Impact Bonds in the US

As public costs for social services continue to increase, the government and non-profit sector look for innovative ways to achieve successful outcomes. The Pay-for-Success (PFS) model, also known as social innovative financing, is a new form of impact investing that has experienced rapid growth in the past few years. The Capstone team consulted with Bank of America Merrill Lynch Global Wealth Retirement Solutions to identify effective behavioral-change interventions for various social issues in the United States.

To identify top issue areas, the team created a customizable scorecard that generated a weighted-average score for PFS programs in any social area. The Capstone team researched 26 current Pay-for-Success models in various stages of development as well as identified government-spending trends and social issue areas of most concern to local, state and federal government. 

Analysis of social issue areas in the United States revealed that healthcare interventions were particularly well suited to be scaled up with PFS finance. Therefore, the team recommended that Bank of America Merrill Lynch proceed with research on implementing PFS contracts for healthcare issues as well as identify potential private funders for future projects.