Definition of 'Relapse Rate'
The rate of re-offending or re-conviction in a target group. The relapse rate is of special significance in social impact bonds (SIBs), which seek to achieve better social outcomes and pass on a significant part of the savings made to investors. The relapse rate may be applicable in referring to social impact bonds in areas such as criminal justice or drug rehabilitation, but may not be wholly accurate when referring to SIBs in other areas such as child protection or adolescent intervention.
Investopedia explains 'Relapse Rate'
The impact of the relapse rate can be best understood by studying one of the first social impact bonds to be issued, which was an SIB issued by Peterborough Prison in the United Kingdom in 2011.
In this SIB, the relapse or re-conviction rate of prisoners released from Peterborough will be compared with the relapse rates of a control group of prisoners over six years. If Peterborough's relapse rate is below the relapse rate of the control group by a certain defined percentage, the SIB investors receive an increasing rate of return that is directly proportional to the difference in relapse rates between the two groups.
The higher return to the investors is made possible by Peterborough Prison's willingness to pass on to the SIB investors a portion of the considerable cost savings achieved through a significantly lower relapse rate of its prisoners.