Social Policy Bonds are a radical new financial instrument designed to inject market incentives into the achievement of social and environmental goals. These can include:
• better health
• universal literacy
• an improved environment
• world peace.
Social Policy Bonds would be backed by either government or by the private sector. They would not bear interest and would be redeemable for a fixed sum only when a targeted social or environmental objective has been achieved and sustained. Social Policy Bonds' advantages over current policies are most marked when a wide array of diverse, adaptive approaches, not all of which can be known in advance, are going to be necessary to achieve a social goal.
The bonds would initially be auctioned for whatever price they would fetch. Thereafter they would be freely tradable at all times until redemption. People would buy and sell Social Policy Bonds just as they do normal bonds and shares. The price of Social Policy Bonds would be higher the closer the targeted objective is to being achieved. As the objective became less remote, the price of the bonds would rise. It is this increase in value that generates the incentive for bondholders not just to hold bonds, but to do something to help achieve the targeted objective.
If government backs the bonds, then the effect of a bond regime is to contract out the achievement of social and environmental goals to the private sector. Government would still specify the objective, and would still be the ultimate source of finance for their achievement.
However, private individuals, non-
The market for Social Policy Bonds would generate valuable information about the total and marginal costs of achieving social goals. Apart from their cost-
Social Policy Bonds, by targeting specified outcomes would also be more transparent than current policies. As well, social and environmental goals are often more stable over time than the best ways of achieving them: scientific knowledge and technology, for instance, are always changing, and policies that specify ways of achieving goals can become obsolete overnight by our expanding knowledge of scientific relationships. Social Policy Bonds would specify only the particular target -
By encouraging diverse, adaptive solutions, Social Policy Bonds therefore could improve the efficiency, transparency and stability with which broad, long-
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