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Unemployment Insurance under Moral Hazard and Limited Commitment: Public vs Private Provision

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Author Info
Jonathan P Thomas () (Department of Economics, University of St. Andrews,)
Tim Worrall () (Department of Economics Keele University)

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Abstract

This paper analyses a model of private unemployment insurance under limited commitment and a model of public unemployment insurance subject to moral hazard in an economy with a continuum of agents and an infinite time horizon. The dynamic and steady-state properties of the private unemployment insurance scheme are established. The interaction between the public and private unemployment insurance schemes is examined. Examples are constructed to show that for some parameter values increased public insurance can reduce welfare by crowding out private insurance more than one-to-one and that for other parameter values a mix of both public and private insurance can be welfare maximising.

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File URL: http://www.keele.ac.uk/depts/ec/wpapers/kerp0220.pdf
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Publisher Info
Paper provided by Centre for Economic Research, Keele University in its series Keele Economics Research Papers with number KERP 2002/20.

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Length: 35 pages
Date of creation: Oct 2002
Date of revision:
Handle: RePEc:kee:kerpuk:2002/20

Note: Originally titled ‘‘Social Insurance and Crowding Out’’.
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Postal: Department of Economics, University of Keele, Keele, Staffordshire, ST5 5BG - United Kingdom
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Web page: http://www.keele.ac.uk/depts/ec/cer/
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Postal: Centre for Economic Research, Research Institute for Public Policy and Management, Keele University, Staffordshire ST5 5BG - United Kingdom
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Web: http://www.keele.ac.uk/depts/ec/cer/pubs_kerps.htm

For technical questions regarding this item, or to correct its listing, contact: (Martin E. Diedrich).

Related research
Keywords: Social Insurance; Moral Hazard; Limited Commitment; Unemployment Insurance; Crowding Out;

Other versions of this item:

Find related papers by JEL classification:
D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
J65 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment Insurance; Severance Pay; Plant Closings

References listed on IDEAS
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  1. Whinston, Michael D., 1983. "Moral hazard, adverse selection, and the optimal provision of social insurance," Journal of Public Economics, Elsevier, vol. 22(1), pages 49-71, October. [Downloadable!] (restricted)
  2. Anderberg, Dan & Andersson, Fredrik, 2000. "Social Insurance with Risk-Reducing Investments," Economica, London School of Economics and Political Science, vol. 67(265), pages 37-56, February. [Downloadable!] (restricted)
  3. Dirk Krueger & Fabrizio Perri, 1999. "Risk sharing: private insurance markets or redistributive taxes?," Staff Report 262, Federal Reserve Bank of Minneapolis. [Downloadable!]
    Other versions:
  4. Rafael Di Tella & Robert MacCulloch, 2002. "Informal Family Insurance And The Design Of The Welfare State," Economic Journal, Royal Economic Society, vol. 112(481), pages 481-503, July. [Downloadable!] (restricted)
    Other versions:
  5. Ethan Ligon & Jonathan P. Thomas & Tim Worrall, 2000. "Mutual Insurance, Individual Savings and Limited Commitment," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 3(2), pages 216-246, April. [Downloadable!] (restricted)
    Other versions:
  6. Diamond, P. A. & Mirrlees, J. A., 1978. "A model of social insurance with variable retirement," Journal of Public Economics, Elsevier, vol. 10(3), pages 295-336, December. [Downloadable!] (restricted)
    Other versions:
  7. Hanno Lustig, 2001. "The Market Price of Aggregate Risk and the Wealth Distribution," Finance 0111004, EconWPA, revised 16 Nov 2001. [Downloadable!]
    Other versions:
  8. Thomas, Jonathan & Worrall, Tim, 1988. "Self-enforcing Wage Contracts," Review of Economic Studies, Blackwell Publishing, vol. 55(4), pages 541-54, October. [Downloadable!] (restricted)
  9. Attanasio, Orazio & Rios-Rull, Jose-Victor, 2000. "Consumption smoothing in island economies: Can public insurance reduce welfare?," European Economic Review, Elsevier, vol. 44(7), pages 1225-1258, June. [Downloadable!] (restricted)
  10. Arnott, Richard & Stiglitz, Joseph E, 1991. "Moral Hazard and Nonmarket Institutions: Dysfunctional Crowding Out or Peer Monitoring?," American Economic Review, American Economic Association, vol. 81(1), pages 179-90, March. [Downloadable!] (restricted)
  11. Ligon, Ethan & Thomas, Jonathan P & Worrall, Tim, 2002. "Informal Insurance Arrangements with Limited Commitment: Theory and Evidence from Village Economies," Review of Economic Studies, Blackwell Publishing, vol. 69(1), pages 209-44, January.
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This page was last updated on 2009-11-13.

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