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Takeup, social multipliers and optimal social insurance

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  • Kroft, Kory
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    Abstract

    This paper examines the optimal provision of unemployment insurance (UI) in a framework that accounts for behavioral responses along both the intensive and extensive margins. Two formulations of takeup are considered: in the first, individuals face a takeup cost that is exogenous; in the second, the cost depends endogenously on the takeup rate. Such endogenous costs to takeup lead to a social multiplier, a reduced-form parameter summarizing the strength of social interactions. This paper derives a formula for the optimal replacement rate in terms of the takeup and duration elasticities, and the social multiplier. The formula is applied by estimating the social multiplier using policy variation in UI benefit levels. The results suggest that social multiplier effects account for 35% of the total effect of UI on takeup and yield an optimal replacement rate around 60% of pre-unemployment wages, 20% higher than previous estimates.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Public Economics.

    Volume (Year): 92 (2008)
    Issue (Month): 3-4 (April)
    Pages: 722-737

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    Handle: RePEc:eee:pubeco:v:92:y:2008:i:3-4:p:722-737

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    Web page: http://www.elsevier.com/locate/inca/505578

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    Cited by:
    1. Rege, Mari & Telle, Kjetil & Votruba, Mark, 2009. "Social Interaction Effects in Disability Pension Participation: Evidence from Plant Downsizing," UiS Working Papers in Economics and Finance 2009/30, University of Stavanger.
    2. Kroft, Kory & Notowidigdo, Matthew J., 2012. "Should Unemployment Insurance Vary with the Unemployment Rate? Theory and Evidence," CLSSRN working papers clsrn_admin-2012-26, Vancouver School of Economics, revised 29 Oct 2012.
    3. Laurence Jacquet, 2010. "Take it or Leave it: Take-up, Optimal Transfer Programs, and Monitoring," CESifo Working Paper Series 3018, CESifo Group Munich.
    4. Laurence JACQUET, 2009. "Take it or Leave it : Optimal Transfer Programs, Monitoring and Takeup," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2009003, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    5. Raj Chetty & Amy Finkelstein, 2012. "Social Insurance: Connecting Theory to Data," NBER Working Papers 18433, National Bureau of Economic Research, Inc.
    6. Landais, Camille, 2013. "Assessing the Welfare Effects of Unemployment Benefits Using the Regression Kink Design," IZA Discussion Papers 7589, Institute for the Study of Labor (IZA).
    7. David Card & David Lee & Zhuan Pei & Andrea Weber, 2012. "Nonlinear Policy Rules and the Identification and Estimation of Causal Effects in a Generalized Regression Kink Design," NBER Working Papers 18564, National Bureau of Economic Research, Inc.

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