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Unemployment insurance in a sticky-price model with worker moral hazard

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  • Givens, Gregory E.

Abstract

This paper studies the role of unemployment insurance in a sticky-price model that features an efficiency-wage view of the labor market based on unobservable effort. The risk-sharing mechanism central to the model permits, but does not force, agents to be fully insured. Structural parameters are estimated using a maximum-likelihood procedure on US data. Formal hypothesis tests reveal that the data favor a model in which agents only partially insure each other against employment risk. The results also show that limited risk sharing helps the model capture many salient properties of the business cycle that a restricted version with full insurance fails to explain.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 35 (2011)
Issue (Month): 8 (August)
Pages: 1192-1214

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Handle: RePEc:eee:dyncon:v:35:y:2011:i:8:p:1192-1214

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Keywords: Unemployment Partial insurance Efficiency wages Sticky prices;

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