Advanced Search
MyIDEAS: Login

Adverse Selection and Moral Hazard: Quantitative Implications for Unemployment Insurance

Contents:

Author Info

Abstract

I construct a dynamic contracting model of optimal unemployment insurance with adverse selection and moral hazard that captures the transition from unemployment to non-participation observed in the data, which the standard moral hazard model fails to capture. My model generates both qualitative and quantitative implications for the optimal provision of unemployment insurance. Qualitatively, for some agents, incentives in the optimal contract imply consumption increases over the duration of non-employment. Quantitatively, I compare the current U.S. system to the optimal one, and find large cost savings to adopting the optimal contract. The optimal contract achieves an additional 46% of cost savings relative to a planner who ignores adverse selection and focuses only on moral hazard. I also find the current transition from unemployment to non-participation to be efficient, and when compared to the current U.S. system, the optimal contract implies agents experiencing a long spell of non-participation have consumption increasing over the spell.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.fullerecon.com/jme0911.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Concordia University, Department of Economics in its series Working Papers with number 12004.

as in new window
Length: 52 pages
Date of creation: Aug 2010
Date of revision: Sep 2011
Handle: RePEc:crd:wpaper:12004

Contact details of provider:
Postal: 1455, de Maisonneuve Blvd, Montréal, Québec, H3G 1M8
Phone: (514) 848-3900
Fax: (514) 848-4536
Web page: http://economics.concordia.ca
More information through EDIRC

Related research

Keywords: unemployment insurance; non-participation; adverse selection; moral hazard; dynamic contracts;

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Robert Shimer & Ivan Werning, 2005. "Liquidity and Insurance for the Unemployed," NBER Working Papers 11689, National Bureau of Economic Research, Inc.
  2. Marcus Hagedorn & Ashok Kaul & Tim Mennel, . "An Adverse Selection Model of Optimal Unemployment Insurance," IEW - Working Papers 237, Institute for Empirical Research in Economics - University of Zurich.
  3. Steven Shavell & Laurence Weiss, 1978. "The Optimal Payment of Unemployment Insurance Benefits over Time," Cowles Foundation Discussion Papers 503, Cowles Foundation for Research in Economics, Yale University.
  4. Garibaldi, Pietro & Wasmer, Etienne, 2003. "Equilibrium Search Unemployment, Endogenous Participation and Labour Market Flows," CEPR Discussion Papers 3986, C.E.P.R. Discussion Papers.
  5. Narayana Kocherlakota, 2010. "Figuring out the impact of hidden savings on optimal unemployment insuranc," Levine's Working Paper Archive 506439000000000291, David K. Levine.
  6. Mitchell, Matthew & Zhang, Yuzhe, 2010. "Unemployment Insurance with Hidden Savings," MPRA Paper 23214, University Library of Munich, Germany.
  7. Andolfatto, David & Gomme, Paul, 1996. "Unemployment insurance and labor-market activity in Canada," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 44(1), pages 47-82, June.
  8. Gautier, Pieter & Moraga-González, José L. & Wolthoff, Ronald P., 2007. "Structural Estimation of Search Intensity: Do Non-Employed Workers Search Enough?," IZA Discussion Papers 3045, Institute for the Study of Labor (IZA).
  9. Wang, Cheng & Williamson, Stephen D., 2002. "Moral Hazard, Optimal Unemployment Insurance and Experience Rating," Staff General Research Papers 10133, Iowa State University, Department of Economics.
  10. Hopenhayn, Hugo A & Nicolini, Juan Pablo, 1997. "Optimal Unemployment Insurance," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 412-38, April.
  11. Carl Davidson & Stephen A. Woodbury, 1997. "The Optimal Dole with Risk Aversion, Job Destruction, and Worker Heterogeneity," Upjohn Working Papers and Journal Articles 97-47, W.E. Upjohn Institute for Employment Research.
  12. Robert Shimer & Iván Werning, 2006. "On the Optimal Timing of Benefits with Heterogeneous Workers and Human Capital Depreciation," NBER Working Papers 12230, National Bureau of Economic Research, Inc.
  13. Bryan Engelhardt & David L. Fuller, 2009. "Efficient Labor Force Participation with Search and Bargaining," Working Papers 0909, College of the Holy Cross, Department of Economics, revised Nov 2009.
  14. Nicola Pavoni, 2009. "Optimal Unemployment Insurance, With Human Capital Depreciation, And Duration Dependence," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 50(2), pages 323-362, 05.
  15. Meyer, Bruce D, 1990. "Unemployment Insurance and Unemployment Spells," Econometrica, Econometric Society, vol. 58(4), pages 757-82, July.
  16. Pries, Michael & Rogerson, Richard, 2009. "Search frictions and labor market participation," European Economic Review, Elsevier, vol. 53(5), pages 568-587, July.
  17. Pavoni, Nicola, 2007. "On optimal unemployment compensation," Journal of Monetary Economics, Elsevier, vol. 54(6), pages 1612-1630, September.
  18. Hugo A. Hopenhayn & Juan Pablo Nicolini, 2009. "Optimal Unemployment Insurance and Employment History," Review of Economic Studies, Oxford University Press, vol. 76(3), pages 1049-1070.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:crd:wpaper:12004. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Economics Department).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.