Pay for Success: Diffusion of Policy Innovation for Social and Economic Stability

• Date: 01 September 2019
• DOI: http://doi.org/10.1111/puar.13100
• Published date: 01 September 2019

784 Public Administration Review • Septe mber | Oct ober 2 019

Vanessa Crossgrove Fry

Boise State University

Pay for Success: Diffusion of Policy Innovation for Social and

Economic Stability

Abstract: Across the United States, communities struggle with numerous social and environmental issues, while the

funding to address these issues continues to diminish. Therefore, actors inside and outside of government are seeking

new policy solutions to persistent social problems. Significant hurdles to new policies exist, however, including a lack

of funding and a reluctance to take on the risks inherent in implementing new programs. A recent innovation in

the policy sphere, pay-for-success (PFS) financing, has been able to overcome these hurdles. Policy innovation does

not come easily, though, and change within government is often slow and methodical. What catalyzes jurisdictions

to engage with PFS? By developing an understanding of the mechanisms and processes of PFS, diffusion scholars

and practitioners can facilitate innovation within jurisdictions. Such innovation, which the federal government

has an opportunity to facilitate, is necessary to shift business-as-usual service provision and enable greater social,

environmental, and economic stability.

“If the misery of the poor be caused not by the

laws of nature, but by our institutions, great is

our sin.”

—Charles Darwin, The Voyage of the Beagle

Across the United States, communities struggle

with numerous social and environmental

issues, while the funding to provide

programmatic services to address these issues

continues to diminish (Reich, Shapiro, and Cho

2017). These issues have been well documented by

academics and practitioners. For instance, Nussle

and Orszag (2015) report that since the 1970s,

kindergarten through 12th-grade reading and math

achievement rates have remained stagnant across the

country. Allaire, Wu, and Lall’s (2018) examination of

the U.S. water supply demonstrates that millions face

health threats because of exposure to unsafe drinking

water, as highlighted by crises in Flint, Michigan, and

California’s Central Valley. In a 2018 report, the U.S.

Department of Justice estimated three-year recidivism

rates in the U.S. prison system to be as high as 68

percent (Alper and Markman 2018, 1).

Additional funding alone, however, will not solve the

educational achievement gap, ameliorate deteriorating

infrastructure, or resolve issues in the criminal justice

system. We also need to focus on programs that work

at the level of prevention. Studies show that at all

levels of government in the United States, there has

been underinvestment in outcome-based, prevention-

related programming, even though preventive

programs have been proven to be more effective and

save money over the long run (GAO 2015; Seftor

2016). The Office of Management and Budget (2012)

posits that this underinvestment has contributed to

the underperformance of numerous government-

funded programs.

As budget constraints and social and environmental

problems continue to put pressure on communities

across the United States, actors inside and outside

of government are seeking new policy solutions

to address these issues effectively and efficiently.

Many scholars suggest that these new policies and

approaches are what is needed to make impactful

improvement (Baliga 2013; Cartwright and Stegenga

2012; Liebman 2018; Nussle and Orszag 2015;

Osborne 1993; Seftor 2016). However, significant

hurdles to embarking on a new policy approach exist,

including a lack of up-front funding and a reluctance

to take on the risk inherent in implementing new

programs.

A recent innovation in the policy domain, pay-for-

success (PFS) financing, has been used by jurisdictions

across the United States to overcome these hurdles.

PFS is a financing model that enables outcomes-

oriented public spending through the financing of

social or environmental interventions with private

sector and/or philanthropic capital. The interventions,

often delivered by nonprofit service providers, are

evaluated for their outcomes, and only if the outcomes

are met do investors get paid back their capital. At

Public Administration Review,

Vol. 79, Iss. 5, pp. 784–790. © 2019 by

The American Society for Public Administration.

DOI: 10.1111/puar.13100.

Viewpoint

Stephen E. Condrey

and Tonya Neaves,

Associate Editors

Vanessa Crossgrove Fry is assistant

research professor and research director

of the Idaho Policy Institute at Boise State

University.

E-mail: vanessafry@boisestate.edu