Poverty Alleviation Programs: Monitoring vs. Workfare
The role of Poverty Alleviation Programs (PAP) in �ghting poverty and ensuring the satisfaction of basic economic needs is well known. How- ever, informational asymmetries create the need for adequate instruments to prevent fraud. This paper provides a static model of adverse selection where the gov- ernment (principal) aims to minimize the costs of a PAP that ensures that all individuals have access to an exogenously de�ned minimum in- come level. Agents may di¤er in their income-generating ability and disutility of labor. Under the di¤erent informational environments, we study the ef- fectiveness of workfare (that involves unpaid and unproductive work in the public sector) as a screening device, based on the comparison with standard monitoring. We �nd that when disutility of labor is the only unobservable variable, a workfare policy is ine¢ cient because it �crowds out�private sector work and signi�cantly increases the costs of the program. Under this informa- tional context, monitoring may be the best instrument for preventing fraud. When income-generating ability is the only unobservable variable, choosing between workfare and monitoring depends not only on the cost function associated with the latter, but also on income distribution. The analysis of this case would suggest that a workfare policy might be inef- �cient in the context of undeveloped countries where income distribution exhibits strong inequalities, but appropriate in developed ones. These conclusions suggest that a mixed policy combining workfare and monitor- ing may be optimal when both income-generating ability and disutility of labor are unknown.
|Date of creation:||2006|
|Date of revision:|
|Contact details of provider:|| Postal: Ludwigstraße 33, D-80539 Munich, Germany|
Web page: https://mpra.ub.uni-muenchen.de
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Paul Beaudry & Charles Blackorby & Dezsö Szalay, 2009.
"Taxes and Employment Subsidies in Optimal Redistribution Programs,"
American Economic Review,
American Economic Association, vol. 99(1), pages 216-42, March.
- Paul Beaudry & Charles Blackorby, 1998. "Taxes and Employment Subsidies in Optimal Redistribution Programs," NBER Working Papers 6355, National Bureau of Economic Research, Inc.
- Beaudry, Paul & Blackorby, Charles, 2004. "Taxes And Employment Subsidies In Optimal Redistribution Programs," The Warwick Economics Research Paper Series (TWERPS) 708, University of Warwick, Department of Economics.
- Beaudry, Paul & Blackorby, Charles, 2006. "Taxes and Employment Subsidies in Optimal Redistribution Programs," The Warwick Economics Research Paper Series (TWERPS) 766, University of Warwick, Department of Economics.
- Brett, Craig, 1998. "Who Should Be on Workfare? The Use of Work Requirements as Part of an Optimal Tax Mix," Oxford Economic Papers, Oxford University Press, vol. 50(4), pages 607-22, October.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:913. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joachim Winter)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.