Economic ordeals are allocation mechanisms that impose non-financial 'deadweight costs to qualify for a transfer' (Nichols and Zeckhauser 1982: 372). Examples include long waiting times, travel and form-filling as conditions for certain healthcare services. Appropriately designed, ordeals can enhance target efficiency so that the goods being allocated better reach the intended recipients. The logic behind this is simple: 'Say one welfare eligible would receive 100 utiles from a particular transfer, yet another would receive only 10. Then an ordeal that imposes an 11 utile loss in order to qualify for the transfer will be an effective sorting device' (Nichols and Zeckhauser 1982: 376). In other words, recipients who would receive smaller benefits are expected to be dissuaded by the ordeal and refrain from requesting the good, whereas recipients who would receive larger benefits from the transfer are expected to seek out the good even if there is a deadweight cost. Moreover, unlike financial participation, which can similarly dissuade users with relatively little to gain from the good in question, ordeals are in no direct way financially regressive: the poor are not necessarily more dissuaded by losing time or by having to fill in a form than the rich are.
All Science Journal Classification (ASJC) codes
- Economics and Econometrics