The Nonparticipation Problem: Behavioral Economics and The Take-Up of Social Benefits

Abstract

The nonparticipation of low-income households in social benefit programs remains a puzzle to many economists, especially when analyzed through a neoclassical lens. For some households, the decision to participate in a government benefit program could mean the difference between living above or below the poverty line. However, behavioral economics—a branch of economics that incorporates human psychology into economic models—may provide a useful framework through which to analyze the nonparticipation of low-income households in government benefit programs. Empirical research suggests that lack of knowledge, incomplete information, hassle costs, and procrastination each play an important role in this policy problem. This paper will begin with an overview of nonparticipation in social benefit programs in the United States, describe the neoclassical theory of how low-income households maximize their utility when deciding whether to participate in such a program, contrast this neoclassical approach with implications from theory and research from behavioral economics, and end with some broad implications—taken from the research—for future policy.