Sheila Selviane Hosea

16061103110 / 7A

Research Method

ESSAYS ON INFORMATION ASYMMETRY AND WELFARE BENEFIT BY

HIZKIA H. D. TASIK

This dissertation talks about the information asymmetry problem between

government and applicants of means-tested welfare benefits. The first chapter examines the
problem in a static setting. In the U.S. means-tested programs, proof of income or assets is
the main criterion of welfare benefit eligibility. However, there are two problems may occur.
Firstly, not all applicants may be able to provide the proof due to various reasons (ex: out of
job, misplacing, etc.) and this will lead to low benefit take-up ratio. Secondly, those who can
provide the proof may have incentives to engage in a behavior that enables them to provide
the lowest possible paychecks.
The second chapter investigates the effect of the asymmetry when benefit applicants
have choices of where and when to apply, and the solution to the asymmetry problem. The
main goal of this study is to provide a solution to the inter-jurisdiction and dynamic
information asymmetry within the welfare program. To achieve the goal, researcher will use
a doublesignal model to construct the inter-jurisdiction and dynamic models. The second
differential came from two motives, namely welfare’s degrees ofattractiveness that were
different across periods of time and a finitely long time period that individuals might stay on
welfare program. Due to this differential, ineligible individuals would engage in another
strategic behavior: procrastination. Individuals procrastinated on the application process until
they found the benefit attractive enough. Using a signaling game model, the result shows
that, after accounting for required-hour and essential component, the individuals have no
incentive to migrate or procrastinate on the application process in order to be eligible.
The third chapter evaluates the solution to the problem when maintaining a particular
take-up rate is also a government’s objective. Imposing ordeal in the welfare system is
expected to help government direct the benefit to the needy but this may reduce the take-
up rate. The models provide a solution on how to distinguish the types of applicants without
harming the take-up rate. Using 2013 U.S. state level data, the model predicts that adjusting
the cutoff level of the ordeals may change the take-up rates anywhere between 0.008 and
9.233 percent. This range represents the total number of marginal individuals who are in the
programs. This sheds some light on what particular cutoff level of ordeals a government
should impose so that it does not harm the targeted take-up rates.