PUBLIC WELFARE Targeting in Social Programs Avoiding Bad Bets

Targeting in Social Programs Avoiding Bad Bets, Removing Bad Apples Peter H. Schuck & Richard J. Zeckhauser 00 7880-6 front.qxd 9/24/2006 2:00 PM Page i Targeting in Social Programs 00 7880-6 front.qxd 9/24/2006 2:00 PM Page ii 00 7880-6 front.qxd 9/24/2006 2:00 PM Page iii Targeting in Social Programs Avoiding Bad Bets, Removing Bad Apples Peter H. Schuck Richard J. Zeckhauser brookings institution press Washington, D.C. 00 7880-6 front.qxd 9/24/2006 2:00 PM Page iv ABOUT BROOKINGS The Brookings Institution is a private nonprofit organization devoted to research, education, and publication on important issues of domestic and foreign policy. Its principal purpose is to bring the highest quality independent research and analysis to bear on cur- rent and emerging policy problems. Interpretations or conclusions in Brookings publica- tions should be understood to be solely those of the authors. Copyright © 2006 THE BROOKINGS INSTITUTION 1775 Massachusetts Avenue, N.W., Washington, D.C. 20036 www.brookings.edu All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without permission in writing from the Brookings Institution Press. Library of Congress Cataloging-in-Publication data Schuck, Peter H. Targeting in social programs : avoiding bad bets, removing bad apples / Peter H. Schuck, Richard J. Zeckhauser. p. cm. Summary: “Provides a framework for analyzing the challenges involved in defining bad bets and bad apples and discusses the safeguards that any classification process must provide. Examines public schools, public housing, and medical care and proposes policy changes that could reduce the problems these two groups pose in social welfare programs”—Provided by publisher. Includes bibliographical references and index. ISBN-13: 978-0-8157-7880-6 (cloth : alk. paper) ISBN-10: 0-8157-7880-5 (cloth : alk. paper) 1. Public welfare administration—United States. 2. Human services—Government policy—United States. 3. United States—Social policy—1993–. I. Zeckhauser, Richard. II. Title. HV95.S38 2006 361.6'120973—dc22 2006029184 987654321 The paper used in this publication meets minimum requirements of the American National Standard for Information Sciences—Permanence of Paper for Printed Library Materials: ANSI Z39.48-1992. Typeset in Adobe Garamond Composition by Kulamer Publishing Services Potomac, Maryland Printed by R. R. Donnelley Harrisonburg, Virginia 00 7880-6 front.qxd 9/24/2006 2:00 PM Page v We dedicate this work to our wives, Marcy and Sally, and to a Schuck–Zeckhauser friendship that stretches over 50 years. 00 7880-6 front.qxd 9/24/2006 2:00 PM Page vi 00 7880-6 front.qxd 9/24/2006 2:00 PM Page vii Contents Acknowledgments ix 1 Introduction 1 2 Conceptual Foundations of Target Efficiency 7 3 High Stakes, Misguided Evasions, and Bad Policies 27 4 Avoiding Bad Bets 46 5 Removing Bad Apples 75 6 Predictive Accuracy and Procedural Protection 99 7 Better Information, Better Targeting, and Better Policies 129 Notes 137 Index 163 vii 00 7880-6 front.qxd 9/24/2006 2:00 PM Page viii 00 7880-6 front.qxd 9/24/2006 2:00 PM Page ix Acknowledgments his book could not have been written without the assistance Tof many people and institutions. We benefited from com- ments, constructive even when skeptical, from fellow scholars including Henry Aaron, Richard Arum, David Cutler, Jack Don- ahue, Lee Ann Fennell, Christopher Jencks, Ron Haskins, Jeffrey Liebman, and Benjamin Sommers, as well as from participants in seminars at Harvard’s Kennedy School of Government and the law schools at New York University, Yale, and the University of Geor- gia where we presented earlier versions of our work. Special thanks go to David Super for reading several chapters and improving our presentation. Two wise medical practitioners, Dr. Samuel Osher and Dr. Randy Reinhold, pointed us in fruitful directions, and our investigations of agency practices in New York City, presented in chapter 5, were facilitated by public officials identified in the notes. Outstanding and extensive research assistance was provided by Melissa Cox (herself a Brookings co-author), who was assisted at one point by Joey Fishkin—both members of the Yale Law School class of 2007. Anda Bordean, Deanna Dong, Felipe Kast, and Nils Wernerfelt, all Harvard students, effectively undertook specific research tasks. Miriam Avins used her deft pen to greatly ix 00 7880-6 front.qxd 9/24/2006 2:00 PM Page x x Acknowledgments strengthen the final product. At Brookings Institution Press, Chris Kelaher shepherded our book through the approval process, Mary Kwak gave us insightful editing suggestions, and Anthony Nathe scrupulously edited our copy. Wendy Wyatt tended our manuscript with her usual skill. Finally, we thank our great institutions—Yale, NYU, and Harvard—for their support. Please see our website www.ksg.harvard.edu/fs/rzeckhauser/targetingin socialprograms.htm. 00 7880-6 front.qxd 9/24/2006 2:00 PM Page xi Targeting in Social Programs 00 7880-6 front.qxd 9/24/2006 2:00 PM Page xii 01 7880-6 CH01.qxd 9/24/2006 2:01 PM Page 1 1 Introduction his book has a simple and straightforward message. The Tpolitical and programmatic success of social programs requires improved target efficiency: directing resources where they do the most good. Although this fact is widely understood, it is seldom discussed, much less analyzed—and certainly not by the supporters of such programs. Our principal goal in writing this book is to make that discussion more coherent, better informed, and easier to conduct. The public domain boasts many sound social programs. Some of these programs seek to allocate resources to individuals who are members of a legally defined target group—people whom politi- cians and policymakers have chosen to receive these resources. But many social programs are not nearly as well targeted as they could be, and a few are so poorly targeted as to call their social value into serious question. Public policy should improve the targeting of social programs so that they can accomplish more of their goals while using the same resources to assist the same needy populations. We are particularly concerned with programs that seek to improve the conditions and opportunities of unfortunate, disad- vantaged, usually low-income individuals, people whom we call bad draws.1 We think of these bad draws as parties to a kind of 1 01 7880-6 CH01.qxd 9/24/2006 2:01 PM Page 2 2 Introduction social contract for insurance against certain random misfortunes. This is why the government pays for medical care for the sick, unemployment benefits for those who lose their jobs, and food stamps for those who would otherwise be hungry or malnourished. The category of bad draws, of course, is extremely broad, providing little guidance to policymakers who must allocate social welfare resources among the many bad draws who have plausible claims on society’s solicitude. This book seeks to provide better guidance by focusing on two particular groups of bad draws who divert resources from the other bad draws for whom they were primarily intended. We call these two groups bad bets and bad apples. All of the individuals in these two groups are bad draws, but they are not well-targeted beneficiaries, either because they derive little benefit from a program (bad bets) or because their very participation imposes significant costs on other participants (bad apples). Bad bets are individuals who are likely to benefit little from social resources relative to other bad draws. Our paradigmatic bad bet is a chronically ill nonagenarian who receives costly medical treatments at public expense, which predictably will yield little social benefit. Bad apples are individuals whose irresponsible, immoral, or illegal behavior in the past—and predictably, in the future as well—marks them as unsuitable to receive the benefits of social programs.2 We are concerned in this book with a subset of this category: those who interfere with the ability of deserving participants to benefit from a program. (Most bad apples also harm themselves, but our principal concern here is their adverse effect on good apples in the same programs.) An all-too-common example of a bad apple is the public school student who chronically disrupts class and thereby impairs the learning of others who desperately need a sound education. Another bad apple is the public housing tenant or homeless-shelter resident whose repeated misconduct debases his or her neighbors’ quality of life. Bad apples are found in every segment of society; the category includes many who are relatively wealthy and advantaged (good draws).3 Here, however, we focus on bad apples who are bad draws because they are the ones who consume the scarce resources available for important social welfare programs. Bad bets and bad apples pose distinct challenges to policymakers, but we think it is useful to address them in a single book. We are keenly aware of the many hard issues raised by a serious effort to understand and address these two problems. First, merely defining these two categories of program beneficiaries is a profoundly difficult undertaking, necessitating tough line-drawing decisions. Second, an even more controversial challenge is the administrative task of assigning particular beneficiaries to these categories. This process in 01 7880-6 CH01.qxd 9/24/2006 2:01 PM Page 3 Introduction 3 effect labels some individuals as socially or programmatically undesirable (in the case of bad apples), and others as relatively unlikely to benefit from program resources (in the case of bad bets). Third, each of these judgments entails predicting future behavior or events on the basis of inevitably limited information, which makes some level of error inescapable.

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