University of Chicago Law School Chicago Unbound Journal Articles Faculty Scholarship 1994 Interdependence and Choice in Distributive Justice: The Welfare Conundrum Lee Anne Fennell Follow this and additional works at: https://chicagounbound.uchicago.edu/journal_articles Part of the Law Commons Recommended Citation Lee Anne Fennell, "Interdependence and Choice in Distributive Justice: The Welfare Conundrum," 1994 Wisconsin Law Review 235 (1994). This Article is brought to you for free and open access by the Faculty Scholarship at Chicago Unbound. It has been accepted for inclusion in Journal Articles by an authorized administrator of Chicago Unbound. For more information, please contact [email protected]. ARTICLES INTERDEPENDENCE AND CHOICE IN DISTRIBUTIVE JUSTICE: THE WELFARE CONUNDRUM LEE ANNE FENNELL* This Article presents a theoretical model for analyzing welfare policy choices, a model that seeks both to explain the puzzling persistence of welfare in the face of widespread dissatisfaction with it, and to provide a reasoned basis for making more satisfactory policy choices. Drawing on game theory, the author postulates that the poor and the nonpoor are faced with a strategic dilemma as a result of their shared stake in the alleviation of poverty. The author's analysis of this dilemma suggests that the nonpoor react rationally by providing assistance to the poor, but that they are dissatisfied with this outcome insofar as it imposes costs on them. Indeed, the author contends that some of the most troubling of these costs result from decisions made by the poor in reaction to the nonpoor's decision to provide assistance. Having identified the strategic dilemma or "game" that results in society's grudging provision of welfare, the author then explores ways in which society can reduce the costs associated with welfare by changing the way the game is perceived by the poor, the nonpoor, or both. The impact of rhetoric and program design on these perceptions is examined in the context of past, present, and proposed policy alternatives. The author concludes by outlining a possible poverty alleviation strategy which, by taking the poor and the nonpoor outside the present strategic dilemma, would eliminate some of the most problematic features of welfare policy. I. Introduction ................................ 237 II. The Need for a More Complete Framework for Analyzing Distributive Justice Questions .......... 244 III. A Game Theoretic Look at Distributive Dilemmas ....... 249 A. Strategic Behavior in the Elimination of Poverty: Defining the Game ..................... 250 B. Exploring Strategic Options in a Two-Person Society ..................... 260 C. The Impact of Children on Strategic Decisions ...... 266 * Associate Counsel, State and Local Legal Center, Washington, D.C.; B.B.A. 1987, Baylor University; J.D. 1990, Georgetown University Law Center. The views expressed herein are my own and do not represent those of the State and Local Legal Center or its sponsoring organizations. I am grateful to Peter B. Edelman and Deborah Chassman, whose social welfare law seminar at Georgetown University Law Center sharpened my interest in distributive issues and helped lay the groundwork for this Article; portions of the analysis contained herein were initially explored in a paper I prepared in conjunction with that seminar. I would also like to thank Christopher Fennell for his invaluable contributions to the development of this Article. WISCONSIN LAW REVIEW IV. Society's Stake in the Game: The Costs of Poverty and Inequality ...................... 267 A. The Inefficiency of Inequality in Opportunity ....... 267 B. Aesthetic Disutility ........................ 269 C. Crime and Rioting ......................... 270 D. Risk of Falling ........................... 271 E. Costs Arising From the Interdependence of Utility Functions ....................... 273 V. The Costly Public Alleviation of Poverty ............. 274 A. Why Public Alleviation? . 274 B. Costs Associated With the Decisions of the Poor ..... 276 1. The Complex Rationality of the Poor ......... 277 2. Work Disincentives Created by Welfare ....... 280 a. Choosing Between Welfare and Work ..... 280 b. Incentive Structures for Welfare Recipients . .................... 282 3. Costs Associated With "Dependency" Patterns ............... 286 4. Family Structure Costs ................... 288 C. Costs of Transferring Money to the Poor ......... 293 1. Infringement of Property Interests and Disutility Associated With Perceived Unfairness in Transfers ........... ... 293 2. Other Costs of the Public Provision of W elfare . ...................... 298 VI. Finding the Optimal Strategy: Techniques for Improving Society's Game ...................... 299 A. Changing the Terms of the Game for the Poor ...... 300 1. The Historical Focus on Deterrence: The Impact of Stigma on Decisionmaking by the Poor . ...................... 300 2. Facilitating the Development of Preferences for Self-Help ............. 305 B. Changing the Way the Nonpoor View the Game ..... 309 VII. Implications for Welfare Policy .................. 310 A. Cash Versus In-Kind Transfers ................ 310 B. Work Requirements and Other Conditional Transfers .................... 312 C. Universal Versus Means-Tested Transfers ......... 320 VIII. Toward the Optimum Welfare Program: Preliminary Thoughts .................... 325 IX. Conclusion . ............................... 328 1994:235 The Welfare Conundrum I. INTRODUCTION Welfare is a longstanding feature of our social and political landscape,' yet it remains a uniquely puzzling piece of social policy. Society grudgingly spends money to transfer holdings from the more well- off to the less well-off,2 yet it is not clear why, at a philosophical level, these transfers are made.' Far from embodying any coherent theory of distributive justice, the welfare system represents an uneasy compromise, acceptable to almost no one,4 forged between clashing and utterly incompatible intuitive ideas of justice and rights.5 Nor have policymakers articulated with clarity what results are expected or desired 1. See, e.g., MICHAEL B. KATZ, IN THE SHADOW OF THE POORHOUSE: A SOCIAL HISTORY OF WELFARE IN AMERICA, at ix (1986) ("American welfare practice has been constructed in layers deposited during the last two centuries."); Jacobus tenBroek & Richard B. Wilson, PublicAssistance and Social Insurance-A Normative Evaluation, 1 UCLA L. REV. 237, 297 (1954) ("Public responsibility for disadvantaged persons and groups may properly be said to have begun with the Elizabethan Poor Laws in the Sixteenth Century."). In this Article, I use the term "welfare" to mean programs such as Aid to Families with Dependent Children (AFDC), which are directed at able-bodied, working-age adults and their dependents. Other programs, such as Social Security, which are consciously redistributive but are not commonly thought of as "welfare," are not encompassed within my usage of the term. See, e.g., DAVID T. ELLWOOD, POOR SUPPORT: POVERTY IN THE AMERICAN FAMILY 5 (1988) ("Welfare, as the public uses that term . means cash, food, or housing assistance to healthy nonaged persons with low incomes."). 2. In this Article, the terms "more well-off" and "less well-off" are used interchangeably with the terms "nonpoor" and "poor," respectively. These terms are used to designate relative levels of material well-being, with "less well-off" or "poor" individuals falling below the level of material well-being that is generally necessary for subsistence and meaningful participation in our society. 3. See, e.g., ROBERT NOZICK, ANARCHY, STATE, AND UTOPIA 232 (1974) ("The legitimacy of altering social institutions to achieve greater equality of material condition is, though often assumed, rarely argued for."), quoted in CHARLES MURRAY, LOSING GROUND: AMERICAN SOCIAL POLICY 1950-1980, at 196 (1984). 4. See, e.g., ELLWOOD, supra note 1, at 4 ("Everyone hates welfare. Conservatives hate it because they see welfare as a narcotic that destroys the energy and determination of people who already are suffering from a shortage of such qualities .... Liberals hate it because of the way it treats people."); KATZ, supra note 1, at ix. 5. See, e.g., ELLWOOD, supra note 1, at 19 ("[Pioverty policy must always be an awkward compromise among competing values and perspectives."); JOEL F. HANDLER & YEHESKEL HASENELD, THE MORAL CONSTRUCTION OF POVERTY: WELFARE REFORM IN AMERICA 30 (1991) (noting the "[clontending ideologies embedded in welfare policy"); Robert P. Bums, Rawls and the Princolesof Welfare Law, 83 Nw. U. L. REV. 184, 237 (1989) (noting that welfare "is a political compromise among conflicting notions of justice"). 238 WISCONSIN LAW REVIEW from welfare expenditures. As a result, there is no obvious way of measuring how well, or even if, a program is working.7 Despite the lack of articulated rationales or goals, the welfare system has been widely disparaged as a failure, or worse, as actually counterproductive! The current unpopularity and perceived futility of the present welfare system have touched off a re-evaluation of welfare policy and have spawned renewed efforts at welfare reform.' Meanwhile, both inequality of income and absolute poverty have continued to climb,"0 with childhood poverty becoming increasingly prevalent." 6. See, e.g., ELLWOOD, supra note 1, at 44 ("[Wlelfare programs like AFDC cannot decide what their goals should be."); THEODORE R. MARMOR ET AL., AMERICA'S MISUNDERSTOOD WELFARE STATE: PERSISTENT MYTHS, ENDURING