ABSTRACT
Under the process of exchange in the market economy, the ability to pay determines the allocation of provisions—people get the goods and services they can afford to purchase. Through the use of sanctions and incentives welfare recipients in the United States are compensated for engaging in socially approved behaviors such as immunization of their children, getting married, going to work, and refraining from having additional children while on welfare. Efforts have been made to introduce rigorous certification for invalidity benefits in Britain, which include shifting responsibility for evaluating incapacity from family doctors to state-appointed assessors and raising the threshold of the "work test" from the claimants' incapacity to perform in their jobs to incapacity to perform in any job. The levels of fraud associated with means-tested benefits can be mitigated through more intense administrative monitoring of recipients' incomes and daily activities. The transaction costs of targeting are particularly high when eligibility is based on diagnostic differentiation of individuals' needs.
