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Optimal Universal and Categorical Benefit Provision with Classification Errors and Imperfect Enforcement
Author(s) -
SLACK SEAN,
ULPH DAVID
Publication year - 2017
Publication title -
journal of public economic theory
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.809
H-Index - 32
eISSN - 1467-9779
pISSN - 1097-3923
DOI - 10.1111/jpet.12218
Subject(s) - categorical variable , imperfect , ex ante , welfare , productivity , work (physics) , economics , test (biology) , econometrics , type i and type ii errors , enforcement , yield (engineering) , statistics , mathematics , engineering , law , political science , market economy , mechanical engineering , paleontology , philosophy , linguistics , materials science , biology , metallurgy , macroeconomics
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, while 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.