Paying for Social Outcomes
Published online by Cambridge University Press: 31 March 2022
Previous chapters noted that a key source of hazard when profit-maximizing actors are involved in private services is the presence of social service attributes that are difficult to contract for. This chapter relaxes this assumption by examining a novel trend of measuring and contracting for social service attributes via outcome-based incentive contracts (such as social impact bonds). The chapter explores alternative contracting arrangements and outlines the perils of outcome-based contracting when outcomes are poorly measured, examining potential failures of measurement and potential remedies. The chapter also discusses the possibility of using outcome-based contracts as coordination devices alongside their more familiar objective of incentivizing superior service performance.
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