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The Role of Unemployment Insurance in an Economy with Liquidity Constraints and Moral Hazard

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Author Info

  • Gary D. Hansen

    (UCLA)

  • Ayse Imrohoroglu

Abstract

The potential welfare benefits of unemployment insurance, along with the optimal replacement ratio, are studied using a quantitative dynamic general equilibrium model. To provide a role for unemployment insurance, agents in the authors' economy face exogenous idiosyncratic employment shocks and are unable to borrow or insure themselves through private markets. In the absence of moral hazard, replacement ratios as high as 0.65 are optimal and the welfare benefits of unemployment insurance are quite large. However, if there is moral hazard and the replacement ratio is not set optimally, the economy can be much worse-off than it would be without unemployment insurance. Copyright 1992 by University of Chicago Press.

(This abstract was borrowed from another version of this item.)

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Bibliographic Info

Paper provided by UCLA Department of Economics in its series UCLA Economics Working Papers with number 583.

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Date of creation: 01 Jan 1990
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Handle: RePEc:cla:uclawp:583

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Web page: http://www.econ.ucla.edu/

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References

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  1. Feldstein, Martin S, 1978. "The Effect of Unemployment Insurance on Temporary Layoff Unemployment," American Economic Review, American Economic Association, vol. 68(5), pages 834-46, December.
  2. Wright, Randall, 1986. "The redistributive roles of unemployment insurance and the dynamics of voting," Journal of Public Economics, Elsevier, vol. 31(3), pages 377-399, December.
  3. repec:fth:prinin:243 is not listed on IDEAS
  4. Rebecca M. Blank & David Card, 1989. "Recent Trends in Insured and Uninsured Unemployment: Is There an Explanation?," NBER Working Papers 2871, National Bureau of Economic Research, Inc.
  5. Kim B. Clark & Lawrence H. Summers, 1984. "Unemployment Insurance and Labor Force Transitions," NBER Working Papers 0920, National Bureau of Economic Research, Inc.
  6. Richard Rogerson, 2010. "Indivisible Labor, Lotteries and Equilibrium," Levine's Working Paper Archive 250, David K. Levine.
  7. R. Mehra & E. Prescott, 2010. "The equity premium: a puzzle," Levine's Working Paper Archive 1401, David K. Levine.
  8. Ehrenberg, Ronald G & Oaxaca, Ronald L, 1976. "Unemployment Insurance, Duration of Unemployment, and Subsequent Wage Gain," American Economic Review, American Economic Association, vol. 66(5), pages 754-66, December.
  9. Gary Hansen, 2010. "Indivisible Labor and the Business Cycle," Levine's Working Paper Archive 233, David K. Levine.
  10. Imrohoruglu, Ayse, 1989. "Cost of Business Cycles with Indivisibilities and Liquidity Constraints," Journal of Political Economy, University of Chicago Press, vol. 97(6), pages 1364-83, December.
  11. Easley, David & Kiefer, Nicholas M & Possen, Uri, 1985. "An Equilibrium Analysis of Optimal Unemployment Insurance and Taxation," The Quarterly Journal of Economics, MIT Press, vol. 100(5), pages 989-1010, Supp..
  12. Topel, Robert H, 1983. "On Layoffs and Unemployment Insurance," American Economic Review, American Economic Association, vol. 73(4), pages 541-59, September.
  13. Burdett, Kenneth & Wright, Randall, 1989. "Unemployment Insurance and Short-Time Compensation: The Effects on Layoffs, Hours per Worker, and Wages," Journal of Political Economy, University of Chicago Press, vol. 97(6), pages 1479-96, December.
  14. Finis Welch, 1977. "What have we learned from empirical studies of unemployment insurance?," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 30(4), pages 451-461, July.
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  1. New insights on optimal unemployment insurance
    by Economic Logician in Economic Logic on 2008-12-23 12:36:00

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