New Motto for a Leaner Washington: Pay for What Works

By Robert Gordon and Fredrick M. Hess

President Obama and leading Republicans are all looking for ways to foster economic opportunity and tackle pressing social challenges, even as annual non-defense spending is on track to amount to the smallest share of the economy in a half century. While some of us rejoice and others wince at that trend, we can all agree that this means a smart Washington should be shifting funds away from programs that don’t work and into ones that do.

This is easier said than done, but there are promising ideas out there.  One is “pay for success,” which seeks to put taxpayer money on the line only afterprograms have gotten results.  That may sound too good to be true—and it could turn out to be. But it’s well worth trying.

The concept behind pay for success is not complicated. Rather than pay for a service up front, the government enters an agreement to pay only after it  delivers specified results. Providers raise money from philanthropic or private-sector funders and a third-party evaluation is arranged.  If the program achieves its intended outcomes, the funders get back their initial investment and a reasonable return.

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