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Separating Psychological Costs from Time Costs: Female Labor Supply and Participation in Food Stamps and WIC

Feb 2007
Working Paper
06-024
By  Colleen Flaherty, Kevin Mumford
Many individuals who are eligible for welfare choose not to participate. This well-documented fact suggests that there is a utility cost associated with welfare participation. Previous studies have produced estimates of how large this cost would have to be to explain the observed degree of non-participation. Prior estimates of this utility cost have not differentiated psychological costs of participation from the time and effort required to become eligible and maintain eligibility (time costs). This paper develops a structural model that allows for the separate estimation of these two types of costs associated with welfare participation in dollar terms. The estimation suggests that psychological costs are three times larger than the time costs of welfare participation.