Investing for Impact

We study joint financing between profit-motivated and socially-motivated (impact) investors and derive conditions under which impact investments improve social outcomes. When project owners cannot commit to social objectives, impact investors hold financial claims to counterbalance owners' profit motives. Impact investors' ownership stakes are increasing in their value of social output, and pure nonprofit status may be optimal for the highest valued social projects. We provide guidance into the design of contingent social contracts such as social impact bonds and social impact guarantees