The voices of Urban Institute's researchers and staff
January 5, 2016

Defining pay for success

Government knows what it spends, but not what it buys. This is our most important and most pressing public policy issue. We consistently and continually fail the most vulnerable and disadvantaged because we, through government, fail to prevent expensive but preventable problems.

There are solutions—based not on ideology, good will, or good intentions, but rather on strong, empirical evidence. Our twenty-first century investments, as a society, need to focus on the very things that we have previously neglected, namely programs that

  • are designed to help, through big but targeted investments, large numbers of people (such as early childhood education);
  • are politically challenging, where the risk of failure could jeopardize an administration, but the benefits of success are substantial (such as providing services to chronically homeless returning prisoners);
  • have very strong evidence bases but haven’t been scaled and therefore reach only a fraction of those in need (such as high risk adolescents in need of intensive services);
  • clearly articulate how an innovation will yield improved outcomes to help the most disadvantaged; and
  • provide funding to programs with outcomes and impacts that occur far in the future (such as services for first-time single teen mothers).

The answer may lie in public-private partnerships that integrate the best of both worlds: a reflection of our nation’s dual belief in capitalism and democracy. We should test this idea, embrace it if it is effective, and reject it but learn from it if it fails. Pay for success (PFS) is both the prescription and the mechanism to test innovative financing for social interventions.

The field relies on stakeholders coming together to build projects that fund an intervention with a model or strong evidence base. One of the struggles of bringing together actors from diverse professional backgrounds is finding a common ground on terminology.

Impact, for example, has a different meaning when you are talking in the context of investing versus social science. In colloquial usage, it relates to whether something caused the intended large-scale change. In an investing context, it questions whether there was a positive social outcome on top of a financial return. In a social science context, it asks if there was a strong comparison group to make assumptions about the causality, as well as internal and external validity.

To address these differences head on, Urban’s Pay for Success Initiative published Foundational Concepts and Terms for Pay for Success, which lays the foundation for how our research team understands evidence, funding, philanthropy, service provision, and governance within PFS projects from an evidence-based perspective. The paper conveys the importance of understanding evidence bases and their role in PFS interventions while answering the who, what, when, where, and why questions about projects and deals, programs and interventions, stakeholder actors, and the potential benefits of PFS.

We have three goals we aim to support:

  • Creating new transparent, objective, and rigorous evidence around innovative practices
  • Implementing demonstrated programs with fidelity to best practice
  • Financing scaling of proven programs

We believe the process of preparing for a PFS transaction is in and of itself a significant positive systems reform, and that alone justifies the experiment. Through this foundational document, we seek to create a common nomenclature to conduct and explain this process.

The Capitol Dome is seem through the flags circling the Washington Monument on a cloudy morning in Washington, Thursday Jan. 22, 2015. Photo by J. David Ake/AP

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