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Behavioral Economics and Perverse Effects of the Welfare State

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Author Info

  • Scott Beaulier
  • Bryan Caplan

Abstract

Critics often argue that government poverty programs perversely make the poor worse off by encouraging unemployment, out-of-wedlock births, and other 'social pathologies.' However, basic microeconomic theory tells us that you cannot make an agent worse off by expanding his choice set. The current paper argues that familiar findings in behavioral economics can be used to resolve this paradox. Insofar as the standard rational actor model is wrong, additional choices can make agents worse off. More importantly, existing empirical evidence suggests that the poor deviate from the rational actor model to an unusually large degree. The paper then considers the policy implications of our alternative perspective. Copyright 2007 Blackwell Publishing Ltd..

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Kyklos.

Volume (Year): 60 (2007)
Issue (Month): 4 (November)
Pages: 485-507

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Handle: RePEc:bla:kyklos:v:60:y:2007:i:4:p:485-507

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0023-5962

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Cited by:
  1. Christian Schubert, 2012. "Opportunity and Preference Learning," Papers on Economics and Evolution 2012-08, Max Planck Institute of Economics, Evolutionary Economics Group.
  2. Funk, Matt, 2008. "On the Problem of the Island of Earth: Introducing a Universal Theory of Value in an Open Letter to The President of the United States," MPRA Paper 14489, University Library of Munich, Germany.
  3. Berg, Nathan & Kim, Jeong-Yoo, 2010. "Demand for Self Control: A model of Consumer Response to Programs and Products that Moderate Consumption," MPRA Paper 26593, University Library of Munich, Germany.
  4. Laibson, David I., 1997. "Golden Eggs and Hyperbolic Discounting," Scholarly Articles 4481499, Harvard University Department of Economics.
  5. Funk, Matt, 2008. "On the Problem of Sustainable Economic Development: A Theoretical Solution to this Prisoner's Dilemma," MPRA Paper 19025, University Library of Munich, Germany, revised 08 Jun 2008.
  6. Pelikan, Pavel, 2008. "The government economic agenda in a society of unequally rational individuals," MPRA Paper 19127, University Library of Munich, Germany, revised 06 Dec 2009.
  7. Funk, Matt, 2008. "On the Problem of Vague Terms: A Glossary of Clearly Stated Assumptions & Careful, Patient, Descriptions," MPRA Paper 14505, University Library of Munich, Germany.
  8. Funk, Matt, 2007. "On the Problem of Dependent People: hyperbolic discounting in Atlantic Canadian island jurisdictions," MPRA Paper 14522, University Library of Munich, Germany.

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