Welfare stigma in the lab: Evidence of social signaling

A puzzle of the modern welfare state is that a large fraction of social benefits is not taken up. Using a laboratory experiment, we present evidence that stigmatization through public exposure causally reduces the take-up of a redistributive transfer by 30 percentage points. We build a theoretical model that interprets welfare stigma as unfavorable inferences about the claimant's type. Our design exogenously varies the informativeness of the takeup decision by varying whether transfer eligibility is based on ability or luck. We find that subjects avoid the inference both of being low-skilled and of being willing to live off others. Contrary to conventional wisdom, stigma may thus also contribute to low take-up if eligibility is not linked to economic performance.