The Credibility Problem in Unemployment Insurance Policy
AbstractThis paper studies the interaction between trade unions, which set wages, and a policymaker, who decides on the level of unemployment benefits and taxes. If the policymaker cannot commit to future policies, taxes and benefits are excessively high in equilibrium. Moreover, employment and output are inefficiently low. Appointing a policymaker who is more conservative than the median voter may solve the credibility problem. Alternatively, increasing wage flexibility may make the credibility problem less severe. Finally, I argue that, when evaluated behind a veil of ignorance, the credibility problem may be a blessing rather than a curse.
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Bibliographic InfoArticle provided by Mohr Siebeck, Tübingen in its journal Journal of Institutional and Theoretical Economics.
Volume (Year): 157 (2001)
Issue (Month): 4 (December)
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Other versions of this item:
- Robert A.J. Dur, 1999. "The Credibility Problem in Unemployment Insurance Policy," Tinbergen Institute Discussion Papers 99-051/1, Tinbergen Institute.
- Robert A.J. Dur, 1999. "The Credibility Problem in Unemployment Insurance Policy," Public Economics 9902003, EconWPA.
- D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
- J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects
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