This paper analyzes the so called social impact bonds (SIBs) and their potential to unify social entrepreneurs, the government and financial markets to solve social challenges. It focuses on the underlying risks and opportunities these financial instruments imply for the government. The first section explains how this collaborative policy-making strategy involves private investors and social service providers in the design and implementation of prevention programs that tackle underlying causes of specific social problems. The second section uses specific cases of SIBs in the U.S., the U.K. and Germany in order to assess the interaction of economics, politics and institutions concerning this policy strategy. I conclude that SIBs have the potential to transform traditional reactive policies into long-term, outcome-based prevention programs, and thereby reduce social problems. However, SIBs still face several challenges, e.g. unknown risk-share definitions for each stakeholder, and the hazard of losing its social change ideology.
