Behavioral Economics and Perverse Effects of the Welfare State

23 Pages Posted: 26 Oct 2007

See all articles by Scott Alex Beaulier

Scott Alex Beaulier

Mercer University

Bryan Caplan

George Mason University - Center for Study of Public Choice; George Mason University - Mercatus Center

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.

Suggested Citation

Beaulier, Scott Alex and Caplan, Bryan, Behavioral Economics and Perverse Effects of the Welfare State. Kyklos, Vol. 60, No. 4, pp. 485-507, November 2007, Available at SSRN: https://ssrn.com/abstract=1024608 or http://dx.doi.org/10.1111/j.1467-6435.2007.00382.x

Scott Alex Beaulier (Contact Author)

Mercer University ( email )

1400 Coleman Avenue
Macon, GA 31207

Bryan Caplan

George Mason University - Center for Study of Public Choice ( email )

Fairfax, VA 22030
United States
703-993-2324 (Phone)
703-993-2323 (Fax)

George Mason University - Mercatus Center ( email )

3434 Washington Blvd., 4th Floor
Arlington, VA 22201
United States

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