The design of 'soft' welfare-to-work programs

Nicola Pavoni, Ofer Setty and Giovanni Violante

Review of Economic Dynamics, 2016, vol. 20, 160-180

Abstract: This paper models welfare-to-work programs as contracts offered by the principal/government to unemployed agents in an environment with moral hazard. A welfare-to-work program comprises of several policy instruments (e.g., job-search, assisted search, mandated work) the principal can use, in combination with welfare benefits, in order to minimize the costs of delivering promised utility to the agent. The generosity of the program and the skill level of the unemployed agent determine the optimal policy instrument to be implemented. Restricting attention to 'soft programs' -- contracts that make no use of punishments or sanctions -- allows a fully analytical characterization of the optimal program and, in addition, it makes the solution robust to hidden saving. (Copyright: Elsevier)

Keywords: Job-search assistance; Human capital; Social assistance; Unemployment insurance; Welfare-to-work; Work requirements (search for similar items in EconPapers)
JEL-codes: D82 H21 J24 J64 J65 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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DOI: 10.1016/j.red.2015.01.001

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