The Economics of Welfare Participation and Welfare Stigma: A Review

Abstract

The basic assumption of consumer demand theory stating that “more is better than less” appears to be violated by those individuals who, although eligible for welfare support, do not claim the benefits which they are entitled to receive. Take-up rates in different countries and in different programs range between 80% and only 25%. This paper reviews the main empirical studies of welfare participation, identifying the individual or household characteristics associated with different levels of participation in welfare programs. We conclude that low take-up rates cannot be satisfactorily explained by lack of information or by heavy transaction costs. in fact, there is some evidence that the psychological cost of claiming benefits, also known as welfare stigma, is probably the main determinant of low take-up rates. the decision not to take-up welfare benefits can be modeled as a rational, utility-maximising decision. the second part of this paper reviews the few contributions to an economic theory of welfare stigma and proposes some areas for future research on welfare take-up.