The Allocation of Benefits underUncertainty: A Decision-Theoretic Framework
AbstractWe consider the problem of targeting benefits when the incomes of families are not accurately observable by the public authorities. By income uncertainty it is meant that the decision-maker cannot ascertain an applicant's income, but that he can assign probabilities with respect to the level of his resources. A decision-theoretic framework is used in order to analyze the decision to grant a benefit of fixed size. The derived decision rule consists of balancing the expected social cost of denying assistance to a person in need (type-I error) against that of granting a benefit to a non-poor (type-II error). Thus, when the cost of type-I errors are on the rise, or those of type-II errors fall, it becomes more desirable socially to increase population coverage of the benefit programme. Empirical illustrations are provided using a sample from the PSID.
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Bibliographic InfoPaper provided by Suntory and Toyota International Centres for Economics and Related Disciplines, LSE in its series STICERD - Distributional Analysis Research Programme Papers with number 10.
Date of creation: May 1995
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Web page: http://sticerd.lse.ac.uk/_new/publications/default.asp
Poverty; imperfect information; allocation of benefits;
Other versions of this item:
- Abul Naga, Ramses H., 2003. "The allocation of benefits under uncertainty: a decision-theoretic framework," Economic Modelling, Elsevier, vol. 20(4), pages 873-893, July.
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LSE Research Online Documents on Economics
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