Optimal universal and categorical benefit provision with classification errors and imperfect enforcement
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We determine the optimal combination of a universal benefit and categorical benefit when individuals differ in their ability to work and, if able to work, their productivity. The categorical benefit is conditioned ex ante on applicants being unable to work and ex post on recipients not working. The awards test makes Type I/II errors. If the ex post condition is (i) not enforced the optimal categorical benefit is positive only if the awards test has discriminatory power, whilst maximum welfare falls with both error propensities; but if (ii) fully enforced the optimal categorical benefit is positive always and maximum welfare can increase with the Type II error propensity.
Slack , S & Ulph , D 2017 , ' Optimal universal and categorical benefit provision with classification errors and imperfect enforcement ' Journal of Public Economic Theory , vol. 19 , no. 2 , pp. 289-311 . https://doi.org/10.1111/jpet.12218
Journal of Public Economic Theory
© 2016, Wiley Periodicals, Inc. This work is made available online in accordance with the publisher’s policies. This is the author created, accepted version manuscript following peer review and may differ slightly from the final published version. The final published version of this work is available at onlinelibrary.wiley.com / https://dx.doi.org/10.1111/jpet.12218
DescriptionFinancial support from the AXA Research Fund is gratefully acknowledged.
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