During fiscal year 1988, 3.75 million families received AFDC payments (Aid to Families with Dependent Children). There were 10.9 million total recipients, two thirds of whom were children. The total cash payments were approximately $17 billion. The total costs of administering the AFDC program were $2.29 billion, or around 13 percent of total cash payments. On a per recipient basis, there was substantial variation across the states in the cost of administering the AFDC program. In 1988, for example, per recipient administrative costs ranged from lows of $53.64 and $85.92 in Mississippi and West Virginia, respectively, to highs of $389.16 and 412.08 per year in Idaho and Massachusetts, respectively. The impact of administrative procedures on AFDC programs has received limited attention from economists, despite the lack of uniformity in benefits level, eligibility standards, and the like among states. Add to these limitations of the AFDC programs the important issue of fraud control. This study will undergo the following four projects: (1) a theoretical model of the decision to apply for welfare which incorporates both errors of stringency and errors of leniency; (2) a game-theoretical model of the fraud control process which focuses on the likelihood of "out-of-court" settlement (repayment) versus prosecution; (3) a state-level time-series cross-section study of the effects of administrative procedures, including fraud control, on the AFDC program; and (4) an aggregate nested logit model of the fraud control process itself. This research will help explain to welfare policy-makers what factors influence the level of fraud and what might be done to better control the level of fraud. The empirical work will also offer an estimate of the extent to which fraud control activities influence welfare caseload and expenditures.
