Welfare fraud and welfare stigma

Abstract

The paper argues that welfare fraud and welfare stigma, apparently two phenomena of opposite nature, may be modeled with the aid of a single apparatus, thus allowing a comparative investigation of participants' take-up of welfare benefits. Focusing on social stigma generated through public exposure in welfare programs, it is shown that under fairly reasonable conditions on the parameters of the model, stigma will constitute a stronger deterrent to participation than the expected punishment for dishonest claiming (in both discouraging participation and reducing its duration). This result is in line with sociologists' contention that the threat of informal sanctions may have a much greater effect on behavior than the threat of legal sanctions. It suggests that the truly needy could be more effectively assisted if less effort were directed towards the enforcement of reporting regulations and work requirements in welfare programs, and more resources shifted to enforcing eligibility conditions and combating dishonest claiming.