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Using Derivative Logic to Speculate on the Future of the Social Investment Market

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posted on 2019-03-27, 12:26 authored by Simon Lilley, David Harvie, Geoff Lightfoot, Kenneth Weir
This paper prises open the black box of the social impact bond (SIB), the novel financial instrument at the heart of social investment. We discover that concrete information is currently limited and our method is thus more speculative. We address the obfuscation of the nomenclature of the instrument, and explore the mechanics of SIBs to suggest that they are not simple bonds but rather also bear properties akin to those associated with derivative contracts. We speculate on possible developments of the market in these bonds by considering the history of some previous financial innovations, namely CDOs underpinned by microfinance loans and the short-lived Policy Analysis Market. Our discussion leads us to reevaluate Goodhart’s law and the ways in which it operates in relation to SIBs. We conclude by suggesting that SIBs inherent indifference to the underlying state of the world renders them ultimately unlikely to delivery improvements in public services.

History

Citation

Journal of Urban Affairs, 2019

Author affiliation

/Organisation/COLLEGE OF SOCIAL SCIENCES, ARTS AND HUMANITIES/School of Business

Version

  • AM (Accepted Manuscript)

Published in

Journal of Urban Affairs

Publisher

Taylor & Francis (Routledge) for Urban Affairs Association

issn

0735-2166

eissn

1467-9906

Acceptance date

2018-12-26

Available date

2019-09-12

Publisher version

https://www.tandfonline.com/doi/full/10.1080/07352166.2019.1584529

Language

en

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