Tina Rosenberg's Fixes blog in today's NY Times has a piece about a new financial instrument in Peterborough, England, where they have issued bonds to run and evaluate a program that provides support and immediate housing to people who cycle "over and over through prisons, courts, homeless shelters and hospital emergency rooms."
In this situation, and quite a few others, it turns out that a relatively small number of people represent a very large part of a social problem. (There's a famous article called "Million-Dollar Murray" that anybody who's interested in homelessness or other social problems ought to read, about structuring effective programs on the basis of this insight. Million-Dollar Murray was a guy named Murray Barr who lived on the streets in Reno; somebody figured out that it cost the city a million dollars over ten years to deal with the consequences.) I wish we were exploring the potential usefulness of this kind of analysis in dealing with downtown problems in Olympia...
Anyway, social impact bonds raise money from private investors to fund programs to deal with social problems. They are evaluated by measuring their outcomes, not their outputs. (In Peterborough, the number of people a program counsels when they are being released from jail is an output; the number of them who actually stay out of jail is an outcome. In Olympia, as in most places, social service agencies cite their outputs and not their outcomes when they apply for funding, partly because a lot of outcomes are very hard to measure...)
If the program meets or exceeds a performance goal, the investors get paid from 7.5% up to 13% annually on their money over the eight year life of the program and the bonds; if it doesn't meet the target, they don't earn anything.
The article has a lot more details... If you want to read more about making programs effective by figuring out who the small number of people who are really causing most of the problem are, and then focusing on them, you might like a book by David Kennedy called Don't Shoot : One Man, A Street Fellowship, and the End of Violence in Inner-City America.