Social impact bonds - exploration across the world

Governments worldwide are examining the social impact bond structure as a potential mechanism to deliver social services to their constituencies.  I gather here the latest information I have found about various

exploratory efforts around SIBs.

UNITED KINGDOM
- Peterborough ongoing recidivism SIB 
- Exploration of SIB addressing preventive care with troubled families

UNITED STATES
- Massachusetts
- Minessota:  investinoutcomes.org
- New York: "'We're actively moving it forward,' said Richard Buery, president and chief executive of the Children's Aid Society, which is working with the Cuomo administration and social justice organizations on the project." (source)
- Rhode Island: "SVPRI [Social Venture Partners Rhode Island] is collaborating with Boston-based Social Finance, Inc. to explore the feasibility of implementing Social Impact Bonds in Rhode Island. [...] We are currently reviewing the process of implementing a bond that would focus on reducing recidivism and could make Rhode Island among the first states to adopt this groundbreaking approach on investing with impact." (source)

SCOTLAND
- "The Scottish Government is currently investigating the potential of SIBs to contribute to improved outcomes and these may have potential to contribute to regeneration as well as other Governmental priorities" (source)

CANADA
- "Feasibility studies are already underway in Canada to explore the use of SIBs, including one with the Heart and Stroke Foundation of Ontario that looks at lowering health-care costs through an innovative health management intervention to reduce hypertension. This initial feasibility work will provide tools and a path to development that will document the support necessary to develop SIBs in Canada." (source)

IRELAND
- Ireland's social investment fund has issued a call for ideas for SIB funding, with the deadline of Sept. 2011.  Clann Credo - The Social Investment Fund, The Atlantic Philanthropies and the Centre for Effective Services have begun research Social Impact Bonds (SIBs) and their potential applicability in an Irish context. (source)
- Programme for Government (2011 to 2016) commits to establish Social Impact Bonds. Topics mentioned include social housing, anti-social behavior, children with ADHD, and diabetes.

AUSTRALIA
- "The New South Wales Government in Australia has announced that it intends to implement a Social Impact Bond (SIB) from February 2011." (source)

SRI LANKA
- "Jeevan Thiagarajah, Executive Director of the Consortium of Humanitarian Agencies, in a proposal to the Ministry of Finance has suggested the creation of social impact bonds. He says under this the initial objective is to attract contributions of Rs.5, 000 from one million citizens who would receive annually 2 % interest on their investment which will be the initial capital of the fund." (source)

Update:

ISRAEL
- "The Portland Trust is in the process of establishing a Social Investment Task Force (SITF) in Israel. This will be led by Sir Ronald Cohen. The SITF will define and determine the course of action to reduce social gaps in Israel. A number of areas are being examined including: case studies of community investment funds from different countries; effective financial tools for social investment (including social impact bonds)" (source)


Decline of religion in Europe

An interesting statistic about the decline of religious observance in Europe.

For years the number of faithful has been declining. The trend has swept across all of Western Europe, with churches forced to close in France and Belgium too. But in the Netherlands, Christianity's retreat from society has been particularly drastic. The Protestant Church alone loses some 60,000 members each year. At this rate, it will cease to exist there by 2050, church officials say.

Source:

Microfinance in the US

Here is an interesting twist on microfinance by West African and Dominican immigrants in Philadelphia.

In this version, the nonprofit fronts the money so that each participant can get a small loan right away — in the case of the Woodland Avenue group, either $500 or $1,000 — rather than waiting their turn for a larger lump sum. But like a traditional ROSCA, everyone shares the risk, via an agreement to assume responsibility for their peers' debts. That peer pressure drives near-perfect repayment rates.

There seems to be a geographic risk here:  If a large grocer opens nearby, many bodegas will see demand plummet and risk-sharing among them won't absorb the shock to their ability to repay the loans.

Source

Larry Summers on the economy

I love how clearly Larry Summers articulates our economic crisis:

LS: The principal problem for the United States economy over the near to medium term continues to be lack of demand. Demand, unfortunately, is heavily in the control of fiscal policy, which requires congressional action for important actions, and monetary policy, which depends on the Fed. So there are limits to what the Obama administration unilaterally can accomplish.

Mitt Romney and Harvard Business School

The New York Times has a wonderful article on Mitt Romney's life in Cambridge and at Harvard's law and business schools.  The articles remind me of a series that the Boston Globe several years ago, which I post below as well.

I think Jodi Canton does a wonderful job of describing how hard working and dedicated to his career and studies Mitt Romney was during his three-year-long joint degree studies at Harvard.  But during the process, she makes the HBS appear much more rigorous and daunting that I have found it.  Perhaps in Romney's day, being grilled was a huge and scary deal.  But today it is stressful and uncomfortable only -- and by no means the frightening endeavor that Canton makes it seem.  The cold call, discussion-based classroom experience incentivizes student to prepare - lest they appear stupid.  But with 10% of the class receiving a "3," the lowest mark, and 20% receiving a "1," the highest mark, while the majority receive a "2," that incentive is weak and forces you to study only so much.  Driven people drive themselves to succeed regardless of environment, and I think Mitt Romney's driven nature (note that I do not endorse his candidacy or politics, but only admire his drive) speaks more of him than of HBS.

"The Making of Mitt Romney"
http://www.boston.com/news/politics/2008/specials/romney/

"At Harvard, a master's in problem solving"
http://www.nytimes.com/2011/12/25/us/politics/how-harvard-shaped-mitt-romney.html

Metrics for the second social impact bond in the UK

More information on the metrics for the second social impact bond project announced by Civil Society Minister Nick Hurd involving problem families in Birmingham, Hammersmith and Fulham, Leicestershire and Westminster.


The new bond for projects with problem families is likely to be more complex. The consultants A4e Insight have been hired by the Office for Civil Society to develop the metrics and will produce an initial report by Christmas. Edward Hickman, director of the firm, says that before any project can go ahead, it must be able to quantify a way of improving families' lives and the improvement must generate sufficient savings for the local authority. Those savings must also be "cashable", he said - capable of being turned into hard cash that will be used to pay back investors.
Andy Robinson, assistant chief executive of Leicestershire County Council, one of the local authorities involved, says there are likely to be a number of metrics. "There are a range of outcomes that might benefit the council," he says. "They might include a reduction in police visits, a decrease in eviction rates, or a rise in school attendance."


Source:
Third Sector
Analysis: Can social impact bonds help to create a better society?
1 November 2011
http://www.thirdsector.co.uk/news/1101352/analysis-social-impact-bonds-help-create-better-society/


Structuring a social impact bond intermediary (Young Foundation)

I came across a paper on social impact bonds by the Young Foundation in the UK that describes a "Public Sector SIB" where local authorities borrow in capital markets to finance a social program and are repaid by the national government is the social program meets predetermined outcomes.

This is an interesting variant on the social impact bond structure that was implemented in Peterborough, UK.  There, funding was raised from foundations and other philanthropic sources, rather than the capital markets; the intermediary was Social Finance UK, a nonprofit, rather than the local government; and the payer was the local, rather than the federal, government.

The obvious advantage of borrowing from capital markets by floating municipal debt is that capital markets offer access to much more money than philanthropies have at their disposal.  And capital markets can not only fund larger and many more interventions, but also offer rating by pricing the risk of the social impact bonds.  In this sense, the pay-for-success contract actual does become a bond -- whereas now the bond is a misnomer for a contract contingent on outcomes.

Perhaps the largest disadvantages to using local governments rather than third-party intermediaries as the project manager revolves around risk and management.  The Peterborough model transfers risk from government -- that is, from taxpayers -- to the funders of the intervention.  If the intervention does not achieve the predetermined outcome, then funders do not get paid.  In the model described by Young Foundation (and they describe other models as well) local taxpayers retain the risk of intervention failure because the bond must be paid, yet the federal government payments are contingent on outcome.  In fact, because mutual funds are large purchasers of municipal debt, and people's retirement portfolios often sit with mutual funds, taxpayers are hurt three times:  from the failed intervention that aimed to improve their social welfare; by having their taxpayer dollars diverted to payment for a failed intervention; and from whatever effects this may have on their retirement portfolio.

Second, although whichever party bears this payment risk faces the greatest incentive to organize the program in a way that best achieves outcomes, the local government may not be the best suited to accomplish this program management.  Local governments typically work with service providers on a regular basis and understand the existing landscape of service delivery well.  But not every local government has the capacity to discover and understand new types of interventions, orchestrate complex delivery of services in a new way, or oversee service delivery in a new way that forces providers to prioritize outcome over process compliance.  Outsourcing of programmatic content and project management is one of the things the innovative social impact bond scheme is testing.

Paper source:

Geoff Mulgan, Neil Reeder, Mhairi Aylott & Luke Bo’sher
Social Impact Investment: the challenge and opportunity of Social Impact Bonds
The Young Foundation March 2011.
http://www.youngfoundation.org/files/images/11-04-11_Social_Impact_Investment_Paper_2.pdf

Some thoughts on impact investing

I recently came across and short and interesting interview with Dr. Judith Rodin, president of the Rockefeller Foundation.  I roughly capture and comment on two Dr. Rodin's points below.  The full interview is here:   http://www.bbc.co.uk/news/business-15102389.

If you look at the problems in the world ... it's estimated that there are trillions of dollars in need.  It's very clear that when we did the catalogue that there are really only billions of dollars of money in government aid and philanthropy that are the traditional sources of trying to solve some of the world's problems...  At the same time we were beginning to understand that capital markets were developing funds with what we called double bottom line mandates...

I think that this quote captures an interesting shift in the social contract between businessmen and citizens in general and the governments under which they operate.  The way I understand the original social contract is that people unite under governments, and agree to surrender to it some rights and resources, and the government agrees to resolve for those people a set of collective problems that they alone cannot address, such as providing for a common defense.  When the Great Depression drastically undercut social welfare, not just in the United States but also abroad, the government took a much larger role in creating and sustaining social safety nets -- we now taxed everyone much more and redistributed welfare to a greater extent.

We now seem to be moving away from looking to governments and international development agencies for safety nets and economic development assistance.  Most of the funding and technical acumen still resides within governments.  But people seem to be increasingly looking toward non-governmental solutions - whether by giving to NGOs as a way to assist with acute crises like in Haiti and Chile, or by preferring double-bottom line solutions like microfinance (through Kiva and others) rather than waiting for the IMF or USAID.

High net worth individuals are acutely aware of the growing inequality in Asia and other developing countries. They want to give back in ways that are consistent with the ways in which they gave money ... For those who would like to figure out how to use their financial acumen and have social impact within the same set of vehicles ... impact investing is becoming a great idea. 

I take away from this quote that economic and social development by businessmen will look drastically different from that done by international development agencies and NGOs.  Already, as I sit in classes at Harvard Business School where we discuss impact investment and social businesses, I see a focus on financial health of socially responsible enterprises at the expense, at least in my mind, of focus on the social impact of those businesses' activities on their target populations.  Whereas financial return is measured using complex instruments, validity of the logic model for the social impact seems to suffice for many business investors when evaluating social return.


Big Society's social impact bonds program

I have not yet seen public announcements of social impact bonds for "problem families," which UK's Big Society project intended to accomplish.

Here is from the August 2011 article from the Cabinet Office:

A major trial of an innovative new way to fund intensive help for families blighted by anti-social behaviour, crime, addiction and poor education was announced by Nick Hurd, Minister for Civil Society today.
Liverpool and Essex are also looking to trial a related Social Impact Bond initiative to support vulnerable adolescents and their families with the objective of preventing care entry
We expect the Social Impact Bond pilots to be funding intensive interventions from spring 2012.

Social impact bonds at the Social Market Conference

The Rt Hon Iain Duncan Smith, a British MP, spoke about social impact bonds at the Social Market Foundation conference last week.  He mentioned the Peterborough UK social impact bond, as well as Steve Aos's research in Washington State about estimating per-dollar social returns.   Some interesting news:

Many of you will be aware of the reoffending Social Impact Bond in Peterborough – the first of its kind anywhere in the world.
We are also in the middle of procuring for the Innovation Fund, which will enable investors to back innovative projects which help disadvantaged young people.
This is about getting in there before people have left school, targeting kids from the age of 14 and up and tackling the root causes of disengagement from education and employment.
And the Cabinet Office is currently leading innovative pilot projects with four local authorities, looking at how social investment can be used to help turn around the lives of some of the most troubled families.

Roundup: Vaclav Havel obituaries

Roundup of great obituaries to Vaclav Havel on the web.

David Remnick, who spent many hours with Havel, writes in his New Yorker
http://www.newyorker.com/online/blogs/newsdesk/2011/12/living-within-the-truth-vaclav-havel.html

Dan Bilefsky, who covers Eastern and Central Europe, and Jane Perletz, who has covered Indonesia and Pakistan, write in the New York Times
http://www.nytimes.com/2011/12/19/world/europe/vaclav-havel-dissident-playwright-who-led-czechoslovakia-dead-at-75.html

And, my favorite, a reprint of Timothy Garton Ash's 1989 piece on the Czechoslovakian revolution in the New York Review of Books
http://www.nybooks.com/articles/archives/1990/jan/18/the-revolution-of-the-magic-lantern/

McKinsey innovation navigator

The McKinsey recently-launched Innovation Navigator profiled my friend's project in NYC to crowdsource ideas for greening New York.

Project:  http://nyc.changeby.us/#start

McK's Innovation Navigator:  http://mckinnovate.com/

Description:
"The Innovation Navigator aims to make it easier for everyone to learn about the people, places, and management strategies driving government innovation. Navigate around the publicly sourced case studies in the map. Become part of the discussion and submit your own."

Social impact bonds -- Westminster's social contact

The city council of Westminster incorporated social impact bonds into a new social contract with its citizens and businesses.

"The government's economy in public spending and other social and economic changes demand a new approach from local government. We see this as being guided by a new sense of civic responsibility, fairness and opportunity. Our principle of responsibility is about recognising the value of public contributions to contribute to making it a successful place.

http://www.guardian.co.uk/local-government-network/2011/dec/12/westminster-council-civic-contract-summary?newsfeed=true

JP Morgan Impact Investing report

JP Morgan's impact investment research team released its second report on the nascent industry.

http://www.thegiin.org/cgi-bin/iowa/resources/research/334.html

Biggest investment are in housing.

See spreadsheet below. If Table 8 in the report is reformatted and sorted by average investment type, we see that the largest investments are made in housing, the second largest in education.  Average housing investment is $5 million, and the average education investment is $0.7 million.  The average overall impact investment is around $2 million.


https://docs.google.com/spreadsheet/pub?hl=en_US&hl=en_US&key=0AoRYN7f_7ejDdEtUNTJhQnEzZno4UVlUUE13TkxBS1E&output=html

Interesting insights about government efforts to spur impact investment (pp. 7-8 of the report):

The United Kingdom (“UK”) government has established Big Society Capital, an impact investor with potentially GBP 600mm (USD 960mm) in capital to serve as a cornerstone investor leveraging further private capital. It will also support the development of new products for the impact investment sector, including “social impact bonds”, in which investors receive dividends linked to successful social results

In the United States (“US”), the Overseas Private Investment Corporation committed USD 285mm to catalyze USD 875mm of investment into six impact investment funds in emerging markets, an example of growing support for impact investments by development finance institutions. The US Small Business Administration also launched an Impact Investment Initiative, pledging USD 1bn over five years to support domestic businesses operating in underserved communities. The initiative matches capital raised by private investment funds through a public-private partnership.

The Australian Government’s Social Enterprise Development and Investment Funds initiative established the country’s first investment funds for domestic social enterprise late-stage seed and growth capital. The funds have been seeded with government first loss capital, include matching capital from private sector funders, and will provide flexible, tailored financial products and support to social enterprises.

"The data exhibits a lower return expectation for developed market impact investments than for traditional investments in the same region."
"For emerging markets, by contrast, the impact investment return expectations are more in line if not higher than the benchmarks’ realized returns"

What do impact investors expect from their investments?
"We find that 84% of investments into non-profit companies or funds were made with concessionary return

expectations (relative to similar non-impact investments). Similarly, 93% of investments made with competitive return expectations went into for-profit companies or funds."


What return do impact investors expect?
Return on debt investments into nonprofits was 3-4%.
Return on debt investments into for-profits was 7-8%.
The corporate form of the investee shaped investors' perceptions more than did the investors' goals for the investment (i.e., concessionary versus competitive expectations).

Returns on impact investments into for-profits do not exceed expectations.
Investors expected returns on the range of 2-7% into developing markets and 8% for emerging markets.  They realized returns of 3-8% in developing markets and 2-6% in emerging markets.  (Tables 10, 11)  And this result is likely to be more stark in reality because reporting bias probably inflates reports of realized returns and suppresses reports of returns that fell short of expectations.



Households doubling up

The Census Bureau blog Random Samplings reported on an interesting trend resulting from the economic downturn.  About 7 million people have moved in to live with their relatives or friends.  About a million of those are young adults living in their parents' houses.  They either could not get a job to move out, or lost their job and moved back in, or just decided that the economics of paying for housing, or buying a house, do not make sense.

It's interesting that the trend in the over-leveraged pre-recession American society has been for kids to move out of their parents' homes as soon as they can afford to do so.  In much of Europe and Asia the trend is the reverse.  In South Korea, for example, the norm is to live with your parents until you get married. The same holds in Russia.  There is a cultural norm there, but also an economic reality of pricey real estate.  The economic crisis here rubs against a cultural norm in an interesting way.  There is more household tension, sure, but also larger and more social households.  I wonder if there's a benefit in that somewhere.

Nature v Nurture

http://www.nytimes.com/2011/11/20/opinion/sunday/sorry-strivers-talent-matters.html?hpw

Argument:  Talent determines success to a greater extent than does hard work, at least at the top levels of intelligence.

Exhibit A is a landmark study of intellectually precocious youths directed by the Vanderbilt University researchers David Lubinski and Camilla Benbow. They and their colleagues tracked the educational and occupational accomplishments of more than 2,000 people who as part of a youth talent search scored in the top 1 percent on the SAT by the age of 13. (Scores on the SAT correlate so highly with I.Q. that the psychologist Howard Gardner described it as a “thinly disguised” intelligence test.) The remarkable finding of their study is that, compared with the participants who were “only” in the 99.1 percentile for intellectual ability at age 12, those who were in the 99.9 percentile — the profoundly gifted — were between three and five times more likely to go on to earn a doctorate, secure a patent, publish an article in a scientific journal or publish a literary work. A high level of intellectual ability gives you an enormous real-world advantage. 


Obviously the first assumption is that desire to reach those academic goals - doctorates, patents, published articles - is similar among the 99 percent-ers.  And the other is that everyone among these categories works equally hard.  This second assumption could be wrong; it could be that students of equal intelligence reach the 99.9 percentile through an extra bit of hard work.  The SAT is, after all, an imprecise test, and small movements on the margin can move the needle.  So we could be observing harder work, rather than greater talent, and mistaking one for the other.

But even if that were not the case, it could still be true that harder work yields more return to success on the margin -- meaning that an additional amount of studying, practicing, staying up late, etc., is more beneficial to any given individual than some magical addition of gray matter.  If the 99.9 people are 5x more "successful" than the 99.1 people, then it could still be the case, if hard work yields high returns, than a 99.1 person working extra hard could offset the "success gap" -- or even dwarf it entirely.


Origin of cases at Harvard

A friend was reading a draft of my case on Google.org and asked why we did cases at the Kennedy School.  I realized I had no idea where cases come from, so decided to dig a little and - voila! - found this great article.

http://harvardmagazine.com/2003/09/making-the-case-html

"
The Law School led the way. A newly appointed dean began to teach with cases in 1870, reversing a long history of lecture and drill. He viewed law as a science and appellate court decisions as the “specimens” from which general principles should be induced, and he assembled a representative set of court decisions to create the first legal casebook. To ensure that class time was used productively, he introduced the question-and-answer format now called the Socratic method.

The Business School followed 50 years later. Founded in 1908, it did not adopt cases until 1920, when its second dean, a Law School graduate, championed their use. After convincing a marketing professor to create the first business casebook, he then provided funding for a broader program of casewriting, built around real business issues and yet-to-be-made decisions. That program produced cases in multiple fields and their use in virtually all courses by the end of the decade.

The Medical School began using cases only in 1985. All were designed to cement students’ understanding of basic science by linking it immediately to practical problems—typically, the case histories of individual patients. These cases formed the foundation of the school’s revolutionary “New Pathway” curriculum that shifted students’ pre-clinical years away from lectures toward tutorials and active learning."

Customers are people, too

"In New Jersey, more than a half a million customers were without power on Sunday, and the state’s largest utility, the Public Service Electric and Gas Company, estimated that it could take as long as a week to restore electricity to all its customers. Connecticut Light & Power said 267,000 customers had lost power.


"In New York, nearly 400,000 customers were without electricity on Sunday, according to the office of Gov. Andrew M. Cuomo. That included 271,000 customers who get their power from the Long Island Power Authority, and 74,000 customers of Consolidated Edison. Many of those outages were in Queens, where 21,700 customers were without power, and on Staten Island, where customers people had lost electricity."

Thoughts on investment evaluation

I recently finished reading Brian Trelstad's article, "Simple Measures for Social Enterprise" in the MIT Innovations Journal, where he discusses how the Acumen Fund evaluates its investments.  I had several thoughts when reading the article, most of which I hope to have the time to write up on the blog.

Are there cases when you do not need to evaluate the impact of your efforts?  


I can imagine several cases.  Say, that you are deciding between ten potential investments.  One has a positive net outcome on your target population, the others have no impact on net.  You have $1000 and can invest only $100 or nothing into each investment.  Ex ante evaluation of your efforts is ridiculously expensive, at $900, but reveals perfectly information about each investment's outcome.  Would you pay $900 to have that information revealed?  If you do, then you will end up paying $900 for due diligence and $100 into the actual investment, for a total of $1000.  However, you can also choose to pay $100 for each of the 10 interventions, for a total of $1000.  

This example is silly because it assumes a very expensive due diligence process, investments that have either no impact or one positive impact, and the ability of due diligence to reveal perfect investment outcomes.

However, the example does point out the tension between investing and analyzing the impact of your investment.  It also suggests that, sometimes, impact analysis is not necessary to reach the ultimate goal of revealing the impactful investment.  

Conference at Dartmouth

I'm going back up to Dartmouth for the Rockefeller Leadership Fellows alumni conference.  I'm thrilled to see all the past RLF alumni, hear what they've been up to since graduation, and catch up with some old friends.  I also haven't visited Dartmouth in over a year.  It will be good to return, and to jog around the lake tomorrow morning.  

Research and other jobs at Harvard

I often wish that the Kennedy school offered students a resource for finding part time jobs while they're at school.  This blog post is an attempt to compile all the different job posting locations for graduate students on campus.


  • JACK.  The Kennedy school job portal occasionally, although not often, features job postings from HKS centers and other locations on campus.
  • Employment@Harvard.  Harvard's official employment website is the largest resource of job sites around the university.   Most of the postings on this site are for full time positions, but I have seen about a dozen new postings per month for part time positions open to students.  The site is divided into an external and internal component.  Always search the internal site.  It contains all the external positions plus the positions that are open only to internal candidates; HKS students qualify as internal candidates.
  • The HLS Administrative Updates blog constantly advertises research assistant positions with law school professors.  Many of the research positions do not require, although often prefer, law school students.  I know of several students with no legal training who have found jobs there.  
  • The Harvard Economics Department maintains a list of job postings for internal and external economics positions.  Some are for research at think tanks in DC or in Boston; others are for research assistant positions; yet others are for course assistance.
Here is a listing of jobs pages, if they are available, at HKS centers.


  • Ash Center -- Does not have an official job page.  Possibly advertises for RA and intern opportunities on Jack or HKS Today.
  • Belfer Center -- Does not have an official job page.  Some of its projects and programs, which largely act as independent entities, post job offerings on their parts of the Belfer website.
  • Carr Center for Human Rights -- Has a dedicated internship page here.  Also lists positions open to students who are eligible for work/study on a separate page here
  • Center for International Development -- Does not have an official job page, although it looks like they would advertise for jobs on their Student Programs page.
  • Center for Public Leadership -- Advertises for jobs here.
  • Edmond J. Safra Foundations Center for Ethics -- Advertises for jobs here.
  • Hauser Center for Nonprofits -- Doesn't have an official job page, but it looks like they would advertise for jobs here.
  • Institute of Politics -- Has a great research assistant page here.  Not only does it offer an application for students to apply for RA positions, but it also lists current RAs and the professors with whom they are affiliated.
  • Joint Center for Housing Studies -- Is not advertising for positions now, although it looks like if they did it would be on their Student Opportunities page.
  • Malcolm Wiener Center for Social Policy -- Doesn't have a job page, although it looks like they advertise for jobs directly on their home page.
  • Mossavar-Rahmani Center for Business and Government -- Has a dedicated page for student jobs here.
  • Rappaport Institute -- Couldn't find a job page, but they offer research funding here
  • Shorenstein Center on the Press, Politics, and Public Policy -- Has an RA application here, and describes that application here.
  • Taubman Center -- Doesn't have a dedicated job page, but discusses fellowships here, so they might also use that space to advertise for RA and part time positions.
  • Women and Public Policy Program -- Has a dedicated internship page here.


Compromises

Obama and Leaders Reach Debt Deal
By CARL HULSE and HELENE COOPER
Published: July 31, 2011
http://www.nytimes.com/2011/08/01/us/politics/01FISCAL.html?hp

The fundamental, albeit ironic, feature of a compromise is that every participant to it looks at the finished document and thinks, "This can be improved to favor me."  The compromise is, by definition, worse for each participant than the best deal that participant can get if he or she crafted the deal alone.  For each participant, therefore, there is another deal that he or she prefers to the one being signed.

How is it possible, then, for a negotiator who enters the discussion with the desire to get the best outcome to settle for what he clearly believes to be the second best outcome?

I guess during the course of the discussions, the negotiator comes to realize that the first-best outcome is impossible to achieve, because others, facing their competing first-best outcomes, will never concede too much.  The negotiator is then faced with the decision between no deal and the second-best deal.  If the second-best deal is preferable to no deal, then he agrees to the compromise.  If the second-best deal is worse than no deal, yet the first-best deal is better than the no deal, then the negotiator continues fighting; but this case is likely rare.

But how does the negotiator come to know that the others will not "concede too much"?

I think negotiations that end in compromises are, at their base, learning exercises in which each negotiator not only learns the contours of the other negotiators' first-best agreements (and in rare cases find out their first-best agreements entirely), but also gains an insight into how far they past their first-best scenario they can be pushed before they start resisting.  That resistance, in fact, controls the outcome of the negotiation much more clearly than does some understanding of the others' first-best outcomes (which, I believe, comes secondary).  If your opposing negotiator is will to give you more of what you want and get you closer to your first-best outcome, you'll take all that he will give (everything else being equal), since your goal is to attain your first-best outcome.  The less your opposing negotiator gives, the less you can take without a fight.  The settlement, then, is controlled by the give-and-take of each negotiator.  

But how much education really happened here?

Perhaps in typical congressional negotiations, little education takes place because each participant already knows so much about his own team and the opposing negotiators.  Take Biden, who has spent decades in the Senate and can pick up the phone and talk to McConnell like they were old pals, albeit at different sides of the aisle.  But this negotiation different in that respect because Obama was somewhat new, the Tea Party Republicans were somewhat new, and many were new to each other in the context of such a high-stakes issue.  Previous negotiations, especially over the healthcare bill, were high-stakes.  But these hit on spending and taxing much more directly than those.   And the Tea Party candidates saw this as their chance to take a stance much more clearly than they saw the healthcare bill -- plus, many were just settling in at the time.

So this was a remarkably educational moment for both sides -- and the education that took place was one of understanding not only the contours of the first-best outcomes of the TP candidates, but also how much they were willing to budge with respect to their desired outcomes.

I bet Boehner will not soon forget their reluctance to fall in line.

Corporate form and pay-for-performance contracts

"The Case for For-Profit Charities"
Anup Malani and Eric Posner
http://www.virginialawreview.org/content/pdfs/93/2017.pdf

Eric Posner (the son of Judge Posner) writes about an interesting discrepancy in tax treatment of for-profit and nonprofit firms. Nonprofits that perform social services, meaning services that are not designed primarily for the purpose of generating profit for the firm's owners, receive a tax break. When nonprofits engage in commercial services, however, that tax break is withdrawn; they are treated, effectively, as for-profit firms. For-profits that engage in social service work, however, do not receive the same tax breaks that nonprofits do when they engage in the same activity. The tax breaks ascribe to the corporate form rather than to its function. Posner argues that the function should control the tax breaks.

However, as Posner points out, some for-profits receive financial incentives from the government for delivering some public goods. For example, the government subsidizes alternative energy producers.

It's interesting to examine how the agency theory, which Posner describes in the article, pertains to social impact bonds. Agency theory says that in a model with an entrepreneur, a donor, and a beneficiary, if the entrepreneur runs a for-profit firm, then the money she she has the incentive to keep as much as possible of the money she receives from the donor to deliver as a product to the beneficiary. If the donor gives the entrepreneur $100, with the understanding that the entrepreneur will keep $10 for herself, spend $10 on operations, and deliver $80 to the beneficiary, then the entrepreneur wants to keep more than $10, which means either delivering less than $80 or spending less than $10 on overhead, or both. In a nonprofit, however, the entrepreneur does not get to keep the profit, and therefore has less incentive to underdeliver on the services that she provides to the beneficiary.

Posner writes about the problematic agency relationship: "Technically speaking, this means the entrepreneur sells a product (transferring charitable money to a beneficiary) whose quality (getting 80% to the beneficiary) is nonverifiable, that is, cannot be stipulated in a contract that is enforceable by a court" (p. 2032).

Now imagine an entirely different model, one describing ex-post payment for performance.  In this model, the donor announces his intention to pay to any entrepreneur $100 for each $80-worth of service that she can deliver to the beneficiary.  One example can be a donor willing to pay a company $100 for each $80 vaccine that the latter will purchase, deliver, administer, and document in a developing country.  The entrepreneur has not yet incorporated her efforts in either a nonprofit or for-profit corporate form.  The question of which form to choose now seems less relevant to her.  If she thinks that she can carry out the task by spending, say, $17, then she should expect to get a profit of $3.  If this profit is above her expected opportunity cost (presumably she is choosing from among several projects), then she will take the donor up on his offer; the lower she expects her overhead to be, the greater her profit and the more incentive she has to take the offer.  She should become agnostic about corporate form, since she will simply set her salary at the $100 less the expected overhead.  The only concern is that the salary will appear excessive.  But that seems to be the donors concern, since he is the one who would have lost money he could have otherwise saved by mispricing his offer.

While the entrepreneur is now agnostic about corporate form, the donor is not.  The donor can deduct his gift to a nonprofit, but not to a for-profit, and therefore prefers that the entrepreneur's efforts take the latter form.  

Bosses

Rob #1 interviewed on NPR recently;
EPA Issues New Standards For Coal-Burning Plants : NPR.

Rob #2 interviewed for the upcoming Trinidad energy conference. The conference will also feature his op-ed on the CDM mechanism, which I helped with.

"What if there was an international policy on how countries should deal with emissions? Robert C. Stowe, executive director of the Harvard Environmental Economics Program and Manager of the Harvard Project on international climate agreements said there must be partnering when it comes to solving the problem of climate change. He contends though, that the greatest challenge to collective action lies in designing an international policy. Substantiating his point and referring to the United Nations Framework Convention on Climate Change (UNFCCC) he said though he was disappointed with the outcome, the Copenhagen Accord, which came out of the conference was: “an important step forward for international climate policy. Commenting further on UNFCCC he said the results “fell short of expectations at the Copenhagen Summit last December. Many were hoping for solid progress toward an agreement to succeed and go beyond the 1997 Kyoto Protocol. Instead, the Copenhagen Accord simply recognises climate change as a challenge and concluded that action is needed to limit global temperature increases.

A manager of the Harvard Project on climate agreements since 2007, Dr Stowe said the project’s goal is to identify public policy options for addressing global climate change. The project conducts research on policy architecture, key design elements and institutional dimensions of domestic climate policy and a post-2012 international climate policy regime. Referring to the Caribbean, Dr Stowe said emissions from the Caribbean are not really a big part of the climate change problem “There are opportunities in the Caribbean for expanding participation in so-called "offset programs"--the most important of which is the Clean Development Mechanism,” he said. Dr Stowe would be part of a panel discussion on DAY Two."
http://www2.guardian.co.tt/business/2011/02/06/themes-energy-conference-2011

Bill Keller on why we write

"Writers write them for reasons that usually have a little to do with money and not as much to do with masochism as you might think. There is real satisfaction in a story deeply told, a case richly argued, a puzzle meticulously untangled. (Note the tense. When people say they love writing, they usually mean they love having written.)"


"Let’s Ban Books, or at Least Stop Writing Them"
Bill Keller
July 13, 2011


I disagree with Bill Keller's parenthetical observation.  Writers often love the finished product, and undoubtedly strive to it, but many, including me, love the process of writing itself.  Stanley Fish, another New York Times columnist and professor of many things including English, once wrote how one author recalled during an interview his reason for writing.  I just love composing words into sentences, the writer said.  And there you have it: the process, rather than only the finished product, drives this man.  (Stanley Fish also recently wrote How to Write a Sentence.) 

There is a power in a sentence--and power, too, in crafting one.  How many writers pen sentences only to strike them and try, try again.  How many more are in the throes of writing rather than the relaxed state of completion.  So perhaps Bill Keller's observation should be not that real satisfaction exists in a "story deeply told," but rather in the telling.

Nancy Lublin's Advice to Nonprofits

The Economist recently interviewed Nancy Lublin, who founded Dress for Success and runs dosomething.org, about nonprofits. I disagree with the way Nancy characterizes one piece of advice that she gave to her listeners. She suggests, toward the end of the interview, that nonprofits do a good job of breaking out their SG&A, the sales, general and administrative costs that they incur as part of their normal operations, whereas for-profits are opaque and report them as one lumped category.

First, if a for-profit's financial statements to the SEC, the 10-K and the 10-Q, do not break out SG&A, that does not mean that the company does not break out these costs in internal memos to its employees.  Companies could, and I am sure that some do, explain some expenses internally at a greater length than they explain them to outsiders.

Second, the extent to which nonprofits must break out their administrative expenses on their 990 forms to the SEC is regulated by law.  The detail into which nonprofits go, therefore, is not necessarily the detail to which they would have liked to go if they had been given the choice.

Third, I doubt that many nonprofits distribute the 990s to their employees, teach them how to read those forms, or even that all employees of large nonprofits are aware that these forms exist.  These forms are not the most complex financial disclosure documents, but they do require a level of financial literacy to understand (plus one must know where to find these forms).  Therefore, it is not necessarily the case that nonprofit employees know how much their organization spent on, say, postage, as Nancy Lublin claims.

Overall, although greater financial disclosure does offer some benefits -- such as keeping runaway spending in check -- nonprofits are not the shining beacon of financial disclosure that Nancy, for a brief second, made them appear to be.

Constitutional Options for Bahrain

The efforts of Professor Chilbi Mallat to offer constitutional options to Middle Eastern regimes that teetered on the verge of regime change were recently published.  Professor Mallat gathered students from across the Tufts and Harvard communities to work on documents that explored the potential movements toward democracy that were available to Egypt and Bahrain by amendment to their respective constitutions.  I participated in the Bahrain effort, the results of which were recently published in the Virginia Journal of International Law.  The organization Right to Nonviolence published the background papers that are associated with the final paper (I helped prepare the backgrounder on the constitutional changes to the Executive Branch.)  Although the entry of Saudi forces into Bahrain several months ago aborted that country's constitutional moment, the exercise offered an incredible window into the practice of advising on constitutional reform.

Journal's entry description:  http://www.vjil.org/articles/constitutional-options-for-bahrain
Publication: http://www.vjil.org/assets/pdfs/vjilonline2/Gelbort_Mallat.pdf

Backgrounders:  http://www.righttononviolence.org/index.php?option=com_content&view=article&id=98&Itemid=45

Pakistan post-bin Laden

One largely unexpected consequence of America's successful operation against bin Laden appears to be serious degradation in our ability to work with Pakistan--at least in the near future.  Pakistani government faces internal questions about its ability to secure sovereignty in the face of a blatant breach of its borders with the night time raid.  It faces questions from Congress and from the international community regarding the honesty of its counter-terrorism efforts, given its claimed ignorance that bin Laden lived less than an hour away from the capital.  It seems reasonable for Pakistan to respond to questions from its internal critics by publicly speaking against the U.S. and perhaps even publicly forbidding the U.S. from executing drone operations within its territory.  It also seems reasonable for our allies and Congress to question why we would be working in any way with such an unreliable ally.  Certainly Pakistan should not expect Congress to approve any more resources flowing its way in the near future.  And it's hard to imagine joint military exercises while American soldiers still hold the suspicion that Pakistani military and intelligence agencies were withholding information.