Competitively awarded government grants

The model of consumer behavior subject to a budget constraint, often applied to such programs as Federal grants to local governments, ignores the fact that the terms and size of the grant may be influenced by the potential recipient's own efforts. This is most clearly true for competitively awarded grants. In a simple case the marginal recipient of a competitively awarded grant receives no net private benefit and imposes a net loss on society for his effort. The issue is general and should be considered in adopting a grant program to achieve social goals.