The Behavioral Econ of Paperwork
Next month, I’ll collect my final payment from my Dependent Care Flexible Spending Account – and I couldn’t be happier. I hate filling out paperwork. Though it only takes a couple hours to save thousands of dollars, I resent the process.
I’m not alone. Education researchers, for example, find that many students leave free money sitting on the table because they fail to fill out the proper forms. Furthermore, modest help with form completion markedly raises uptake. Some highlights:
Some students receiving college financial aid could be getting more. Others fail to qualify for aid entirely: each year, more than one million college students in the United States who are eligible for grant aid fail to complete the necessary forms to receive it. Bird and Castleman (2014) estimate that nearly 20 percent of annual Pell Grant recipients in good academic standing fail to refile a FAFSA after their freshman year, and subsequently miss out on financial aid for the following academic year.
Additionally, the complexity of the financial aid application confuses and deters students (ACSFA 2001, 2005). To determine eligibility, students and their families must fill out an eight-page, detailed application called the Free Application for Federal Student Aid (FAFSA), which has over 100 questions. King (2004) estimates that 850,000 college students who were eligible for federal grant aid in 2000 did not complete the forms necessary to receive their benefits
Since I think education is extremely socially wasteful, I’m glad that so many students fail to game the system. But – as Robin Hanson pointed out at a seminar on this research – there’s probably something much bigger at work. What researchers have learned about students and FAFSA is probably just a special case of the fact that humans hate filling out paperwork. As a result, objectively small paperwork costs plausibly have huge behavioral responses.*
Consider a few possible margins:
1. A small business-owner decides not to hire a worker because he doesn’t want to fill out tax and other regulatory compliance forms.
2. A home-owner decides not to improve his home because he doesn’t want to get the necessary permits and inspections.
3. A traveler decides not to visit a country because he doesn’t feel like applying for a visa.
4. An unemployed worker (note the low opportunity cost!) doesn’t apply for unemployment insurance because the process is aggravating.
5. A childless couple decides against adoption because the bureaucracy is hellish (or, in the case of international adoption, hellish squared).
Many people’s knee-jerk reaction will be, “Let’s cut red tape!” But the craftier response is, “Let’s manipulate red tape.” If X is good, we can noticeably encourage it by modestly simplifying the paperwork. So yes, cut red tape for employment, construction, travel, and adoption. If X is bad, though, we can noticeably discourage it by modestly complicating the paperwork. Indeed, complexity is a viable substitute for explicit means-testing: If you lack the patience to fill out ten forms, you probably don’t really need the money.
* Of course, if someone fills out paperwork full-time, they might become inured to the drudgery. But we’d still expect oversized behavioral effects of paperwork for everyone who can’t cheaply delegate such tasks to a trusted professional.