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Asset‐Based Unemployment Insurance

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  • Pontus Rendahl

Abstract

This paper studies a model of optimal redistribution policies in which agents face unemployment risk and in which savings may provide partial self-insurance. Moral hazard arises as job search effort is unobservable. The optimal redistribution policies provide new insights into how an unemployment insurance scheme should be designed: First, the unemployment insurance policy is recursive in an agent's wealth level, and thus independent of the duration of the unemployment spell. Second, the level of benefit payments is negatively related to the agent's asset position. The reason behind the latter result is twofold; in addition to the first-order insurance effect of wealth, an increase in non-labor income (wealth) amplifies the opportunity cost of employment and thus reduces the agent's incentive to search for a job. During unemployment the agent decumulates assets and the sequence of benefit payments is observationally increasing - a result that stands in sharp contrast with previous studies.

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File URL: http://hdl.handle.net/10.1111/j.1468-2354.2012.00699.x
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Bibliographic Info

Article provided by Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association in its journal International Economic Review.

Volume (Year): 53 (2012)
Issue (Month): 3 (08)
Pages: 743-770

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Handle: RePEc:wly:iecrev:v:53:y:2012:i:3:p:743-770

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  1. Mikhail Golosov & Narayana Kocherlakota & Aleh Tsyvinski, 2001. "Optimal indirect and capital taxation," Staff Report 293, Federal Reserve Bank of Minneapolis.
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Cited by:
  1. Koehne, Sebastian & Kuhn, Moritz, 2012. "Should unemployment insurance be asset-tested?," MPRA Paper 36973, University Library of Munich, Germany.
  2. Parsons, Donald O., 2014. "Job Displacement Insurance: An Overview," IZA Discussion Papers 8223, Institute for the Study of Labor (IZA).
  3. Tatsiramos, K. & Ours, J.C. van, 2012. "Labor Market Effects of Unemployment Insurance Design," Discussion Paper 2012-082, Tilburg University, Center for Economic Research.

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