11. L'avenir de l'assurance-chômage en question..

Agents cannot perfectly insure against unemployment risk because of credit market imperfections, bounded rationality, as well as unhedgeable macroeconomic risks: hence the necessity of a public insurance scheme. Providing insurance publicly has a cost: more generous benefits discourage search effort. However this also has benefits: it can dampen the drop in consumption due to the sudden income loss. This tradoff between insurance and moral hazard is at the heart of optimal design of unemployment insurance benefits (both their level and duration). Moroever, recent work suggests that in crisis times, limited labor demand changes the moral hazard problem. Because of search externalities, unemployment insurance should be countercyclical, that is the duration of unemployment benefits should vary over the business cycle. This idea could be at the heart of a European unemployment insurance, which the author advocates.