* Scott Beaulier, Assistant Professor, Department of Economics and Management, Beloit College, Beloit, WI 53511. Email: firstname.lastname@example.org. Bryan Caplan, Associate Professor, Department of Economics and Center for Study of Public Choice, George Mason University, Fairfax, VA 22030. Email: email@example.com.
Behavioral Economics and Perverse Effects of the Welfare State
Version of Record online: 24 OCT 2007
Volume 60, Issue 4, pages 485–507, November 2007
How to Cite
Beaulier, S. and Caplan, B. (2007), Behavioral Economics and Perverse Effects of the Welfare State. Kyklos, 60: 485–507. doi: 10.1111/j.1467-6435.2007.00382.x
We would like to thank Tyler Cowen, Robin Hanson, Kevin McCabe, Dan Houser, Ron Heiner, seminar participants at George Mason University, Beloit College and New York University and an anonymous referee for discussion and comments. The standard disclaimer applies.
- Issue online: 24 OCT 2007
- Version of Record online: 24 OCT 2007
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.