A comparison of the costs of residential care and home care shows that the former is more expensive for society. However, elderly people seem to be happier in residential care. All stakeholders, except the state (and thus the taxpayer), benefit if elderly people enter residential care. This reveals that payment systems in the Netherlands contain adverse incentives stimulating entry into residential care. The research is based on surveys of older people in the Netherlands living at home and those living in residential care homes in the period 2007-2009. Propensity score matching is used to match people living at home with those living in residential care. All costs of living and health care are compared for these two groups.

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Since 2004, most municipalities in the Netherlands receive lump sum payments from the state for the payment of social assistance allowances. As municipalities had no authority to change the eligibility rules for social assistance, the effects of the welfare reform are solely due to the efforts of municipalities to decrease the number of welfare recipients. Using variation in the timing of policy changes, this paper uses a difference-in-difference approach to assess the effectiveness of the incentive for municipalities. Based on individual panel data from administrative records, we show that the high-powered scheme led to a decline of the welfare caseload of 14% up till 2008. The reform has been most effective for those with the highest welfare dependency: single mothers and singles from non-western origin. In line with standard economic predictions, the reform does not give an incentive for cream skimming: the welfare caseload declined as well for easy to place recipients as for difficult to place recipients.

The long-run effects of active labor market policies can be quite different from their short-run effects. Negative short-run effects can be explained by the lock-in effect: During training, the job search efforts of unemployed individuals decrease or even seize, thereby causing an initial drop in the probability of employment for those attending training programs. We show that in the long run (4-7 years after the start of a program) all programs have a positive and long-lasting impact on the probability of employment. However, the cost-effectiveness over the period of 4-7 years depends crucially on the magnitude of the initial lock-in effect. For programs which increase the job search efforts of participants during the program, like placement services, no lock-in effect is observed. In the long run, only placement services and training courses are cost-effective.

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