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The allocation of benefits under uncertainty: a decision-theoretic framework

Abul Naga, Ramses H. (1995) The allocation of benefits under uncertainty: a decision-theoretic framework. DARP, 10. Suntory and Toyota International Centres for Economics and Related Disciplines, London School of Economics and Political Science, London, UK.

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Abstract

We consider the problem of targeting benefits when the incomes of families are not accurately observable by the public authorities. By income uncertainty it is meant that the decision-maker cannot ascertain an applicant's income, but that he can assign probabilities with respect to the level of his resources. A decision-theoretic framework is used in order to analyze the decision to grant a benefit of fixed size. The derived decision rule consists of balancing the expected social cost of denying assistance to a person in need (type-I error) against that of granting a benefit to a non-poor (type-II error). Thus, when the cost of type-I errors are on the rise, or those of type-II errors fall, it becomes more desirable socially to increase population coverage of the benefit programme. Empirical illustrations are provided using a sample from the PSID.

Item Type: Monograph (Discussion Paper)
Official URL: http://sticerd.lse.ac.uk
Additional Information: © 1995 Ramses H. Abul Naga
Library of Congress subject classification: H Social Sciences > HB Economic Theory
H Social Sciences > HV Social pathology. Social and public welfare. Criminology
Sets: Collections > Economists Online
Research centres and groups > Suntory and Toyota International Centres for Economics and Related Disciplines (STICERD)
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Identification Number: 10
Date Deposited: 07 Jul 2008 15:17
URL: http://eprints.lse.ac.uk/6620/

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