Yoram Margalioth (Tel Aviv University, Buchanan Faculty of Law) presents Employing Statistical Stigma As a Welfare Ordeal at NYU today as part of its Colloquium Series on Tax Policy and Public Finance.  The co-convenors are Daniel Shaviro (NYU) & Alan Auerbach (UC-Berkeley, Department of Economics).  Here is the abstract:

In this paper we draw attention to the existence of a probalistic type of stigma according to which society attributes stigma to all welfare claimants (deserving and undeserving alike) due to the existence of imperfect information regarding individuals' productive abilities.  We argue that this type of stigma could be used as an ordeal mechanism, where by imposing differential (participation) costs on welfare claimants, which are positively correlated with ability, the government can improve the lot of the truly needy. This mechanism should be traded-off against the advantages of having a universal welfare system, in general, and the costs of the traditional type of stigma, in particular, but should be taken into account when designing the optimal tax and transfer system.

Update:  Dan Shaviro has more here.