In 2010, the United Kingdom’s Ministry of Justice entered into an agreement with a nonprofit known as Social Finance to prevent reoffending by juvenile offenders released from prison in Peterborough, England. What made this contract unique is that the government payments to Social Finance were not based on delivery of services but instead on the level of government cost aversion from reduced recidivism. To cover the upfront cost of funding this prevention effort, Social Finance raised $5 million from private investors. If the effort successfully reduces recidivism 7.5% by 2016, then they will receive back their initial investment plus a performance bonus—totaling up to $8 million. This contract, now commonly known as a social impact bond (SIB), represents an innovative financing strategy that leverages private investment to move public services upstream to prevent greater costs in the future. Interim results from the Peterborough SIB indicated that recidivism has dropped 6%...

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