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.
May 23 2017 at 11:46pm
Good idea. Here’s some low-hanging fruit for the “make them fill out paperwork” nudge: License drug users! Once licensed, users have access to a legal drug market. Most won’t bother with the bureaucratic hassle of getting certified. For the ones who do, we can subject them to all kinds of useful safety information (avoid certain combinations of drugs, age is a huge risk factor in overdose deaths (the older the riskier), *these* drugs are lower risk relative to *those*, always have a “spotter” with naloxone on hand, etc.). Sure, some will sidestep this process and buy on the black market anyway, but we can at least reach most of the drug users and direct them to a relatively safe legal supply. Not my first choice for drug policy, but it’s a lot better than using violence to enforce a general prohibition.
May 24 2017 at 12:43am
Another anecdotal piece on this. Just this afternoon, and before seeing this post! …my colleague was leaving work at the same time I was. He has an electric car, and his lease is up. He has a new lease with a new car, but a different company. He was saying what a giant hassle all the paper work is to return a leased car – if you don’t get a new lease with them. I, having never leased before, replied, “Well, that does it, I’m definitely never leasing then!!”
May 24 2017 at 4:55am
I have wondered if this is a significant part of the impact of taxes. An existing tax rate rising by a few percentage points may be less inhibiting than a new tax, with all its complications and red tape.
May 24 2017 at 6:12am
I think this is an underappreciated point.
When I have pointed out the compliance costs of regulation in the past, frequently the person with whom I am discussing the matter will assume I’m talking solely about financial costs. Most people seem to overlook entirely the costs in time, effort, and mental energy required in filling out the necessary paperwork.
May 24 2017 at 2:02pm
100% true. As a software engineer, I have an extremely low paper tolerance. I have an allergic reaction to snail mail, and the shredder is my best friend.
May 24 2017 at 2:19pm
Companies manipulate this all the time. Think about mail in rebates, you physically have to fill out some paperwork, cut off the proof of purchase, attach your receipt, and then find a stamp and envelope and then put everything in the mailbox. Most people don’t bother unless the rebate is very large, thus saving the company money.
My mother used to sell insurance for a large auto insurance company, by law in the state of CA they had to offer insurance to certain customer that they would prefer not to insure. For a customer they wanted, they would sign you up over the phone using a credit card in 15 minutes or less. For a customer they didn’t want, but were forced by law to offer insurance to, they would send you a paper application by mail. This paper application was very difficult to fill out and if any sections were not completed properly they would reject the application.
May 30 2017 at 12:01am
Disabled people’s families may be afraid of losing benefits if the disabled person tries to find a real-world occupation.
Also, the paperwork necessary to obtain permission from the State to hire a disabled person for two hours a day for a few weeks may be hellish cubed in some first world countries (the more leftist the bureaucracy, the greater the deterrence effect of paperwork).
Jun 4 2017 at 9:59am
There is at least one professional guild dedicated to paperwork — lawyers. They will use paperwork-barriers-to-aid to justify all kinds of well-intentioned “public interest” work to lower those barriers. Inevitably, they will obtain funding from the taxpayers, either directly or indirectly. The result will a taxpayer funded service fee on top of the taxpayer funded subsidies.
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