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Oxford Economic Papers Advance Access published online on August 21, 2007
Oxford Economic Papers, doi:10.1093/oep/gpm017
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© Oxford University Press 2007 All rights reserved

Choosing to become a ‘lost cause’: the perverse effects of benefit preconditions

Lisa Farrell* and Paul Frijters{dagger}

*The Geary Institute and School of Economics, University College Dublin, Ireland; e-mail: lisafarrell{at}ucd.ie
{dagger}School of Economics and Finance, QUT, & RSSS- Economics, ANU, Australia

JEL classifications:: J60, I38


  Abstract

This paper argues that preconditions for welfare benefit entitlements based on labour market prospects can be counterproductive when they create an incentive for individuals to abstain from any investment earlier in life that could improve future prospects. Benefit entitlements based partly on investments made prior to labour market entry are then Pareto-improving.


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