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Optimal Unemployment Insurance

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Author Info

  • Hopenhayn, Hugo A
  • Nicolini, Juan Pablo

Abstract

This paper considers the design of an optimal unemployment insurance system. The problem is modeled as a repeated principal-agent problem involving a risk-averse agent--the unemployed worker--and a risk-neutral principal, which cannot montor the agent's search effort. The optimal long-term contract involves a replacement ratio that decreases throughout the unemployment spell and a wage tax after reemployment that, under some mild regularity conditions, increases with the lenght of the unemployment spell. Some numerical results suggest that the gains from switching to this optimal unemployment insurance scheme could be quite large. The performance of this optimal contract is also compared to alternative liquidity provision mechanisms. Copyright 1997 by the University of Chicago.

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Bibliographic Info

Article provided by University of Chicago Press in its journal Journal of Political Economy.

Volume (Year): 105 (1997)
Issue (Month): 2 (April)
Pages: 412-38

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Handle: RePEc:ucp:jpolec:v:105:y:1997:i:2:p:412-38

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Web page: http://www.journals.uchicago.edu/JPE/

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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Optimal unemployment insurance monitoring
    by Economic Logician in Economic Logic on 2009-11-30 15:12:00
  2. New insights on optimal unemployment insurance
    by Economic Logician in Economic Logic on 2008-12-23 12:36:00
  3. UI and Unemployment
    by Stephen Williamson in Stephen Williamson: New Monetarist Economics on 2013-12-09 17:16:00

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  1. > Labor Economics > Unemployment Insurance > Optimal Unemployment Insurance
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