A “relapse rate” tells us the percentage of people who, after getting busted for doing something bad or criminal once, get busted again later. For example, if 100 people are ticketed for jaywalking, and then the next week, 50 of those people jaywalk again, we’ve got ourselves a jaywalking relapse rate of 50%.
So what does this have to do with finance? To answer that question, we’d like to tell everyone a little story about a place called Fakeberg. Fakeberg is a small town with a big problem: 45% of the population consistently uses the wrong there/their/they’re in written communications. It’s an epidemic. But the city council thinks they’ve come up with a way to address it: they’ve started offering something called pay-for-success bonds, or social interest bonds (SIBs). When investors buy these bonds, the funds are used to provide grammar and spelling awareness lessons to the people of Fakeberg. If, after two years, the relapse rate of there/their/they’re offenders falls below a certain number—let’s say 92%--then investors will receive a nice return on their investment, courtesy of the city. And wouldn’t that be nice?
Pay-for-success bonds are a somewhat new phenomenon, but they’re gaining popularity. And relapse rates are one of the ways in which their success can be measured. They’re also helpful in other areas, like when we’re calculating how much the opioid epidemic is costing our community every year, for example. It’s not the only thing we should look at, but it can definitely be a useful statistic in the right situations. So they're you go.
