| Hanming Fang, University of Pennsylvania Dan Silverman, University of Pennsylvania |
| Dole Meets Laibson: On the Compassion of Time-limited Welfare |
| Session: C-1-24 Friday 11 August 2000 by Silverman, Dan |
| Supporters of recent U.S. welfare reforms argue that time limits on benefits serve recipients by promoting work and facilitating escape from "the destructive lifestyle of welfare." We investigate the theoretical validity of this claim with a simple model in which agents may have time-inconsistent, present-biased preferences. We identify four effects that may underlie the behavior of a present-biased agent in the absence of time limits: the carpe diem effect, the lack-of-commitment effect, the free-ride effect, and the now-or-never effect. We show that the behavioral consequences of time limits are contingent on which effect(s) was in force in the absence of time limits. In particular, we show that under some conditions the imposition of time limits improves the well-being welfare recipients evaluated both in terms of long-run (time-consistent) utility and the period-1 self's utility. In some cases, this benefit of time limits comes from allowing the welfare eligible to start working earlier than they otherwise would. In other cases, contrary to the intent of the reforms, the benefit of time limits comes from allowing recipients to postpone working. |