Sticks and Carrots for the Alleviation of Long Term Poverty

54 Pages Posted: 28 Feb 2002

See all articles by Fred Schroyen

Fred Schroyen

Norwegian School of Economics (NHH) - Department of Economics

Gaute Torsvik

University of Bergen - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Date Written: January 2002

Abstract

Work requirements can make it easier to screen the poor from the non-poor. They can also affect future poverty by changing the poors' incentive to invest in their income capacity. The novelty of our study is the focus on long term poverty. We find that the argument for using work requirements as a screening device is both strengthened and weakened with long term poverty, and that the possibility of using work requirements weakens the incentives to exert effort to escape poverty. We also show that the two incentive problems, to screen poverty and deter poverty, are interwoven; the fact that the poor can exert an effort to increase their probability of being non-poor in the future makes it easier to separate the poor from the non-poor in the initial phase of the program. Finally we show that if it is possible to commit to a long term poverty alleviation program it is almost always optimal to impose some work requirements on those that receive transfers.

Keywords: Long-term Poverty, Ratchet Effect, Moral Hazard, Screening

JEL Classification: D82, I38

Suggested Citation

Schroyen, Fred and Torsvik, Gaute, Sticks and Carrots for the Alleviation of Long Term Poverty (January 2002). CESifo Working Paper Series No. 659. Available at SSRN: https://ssrn.com/abstract=301263

Fred Schroyen (Contact Author)

Norwegian School of Economics (NHH) - Department of Economics ( email )

Helleveien 30
N-5035 Bergen
Norway

Gaute Torsvik

University of Bergen - Department of Economics ( email )

Fosswinckelsgt. 6
N-5007 Bergen, 5007
Norway
55589225 (Phone)
55589210 (Fax)

CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Poschinger Str. 5
Munich, DE-81679
Germany

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