Social Impact Bond (Pay for Performance)

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Social Impact Bonds are a new and innovative financing vehicle for social programs that flip traditional government funding structures on their head. Instead of paying upfront for a proscribed set of services, SIBs allow government to focus funds on approaches that work—without paying a dime if agreed-upon outcomes are not achieved. SIBs work by bringing together government agencies, social service providers, and philanthropically minded financiers to achieve better results for people receiving social services and for the taxpayers funding those services.  Government agencies define an outcome they want to accomplish and agree to pay an external organization a sum of money if the external organization achieves that outcome. This unusual mechanism promotes innovation in public services by putting taxpayer dollars toward the most effective approaches. This is markedly different from normal funding arrangements for social programs, in which agencies typically commit to funding activities regardless of the outcome.

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