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Moral Hazard, Optimal Unemployment Insurance, and Experience Rating

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Author Info
Williamson, Stephen D. () (University of Iowa)
Wang, Cheng () (Carnegie Mellon University)

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Abstract

This paper is concerned with evaluating alternative unemployment insurance (UI) schemes in a dynamic economy with moral hazard. We consider changes in the size and duration of UI benefits, and the effects of experience rating, and use a dynamic contracting approach to determine a benchmark optimal allocation. Radical changes in the current UI system increase welfare, but not by much. A move to full experience rating has distributional effects, but the aggregate effects are negligible.

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Publisher Info
Paper provided by University of Iowa, Department of Economics in its series Working Papers with number 99-03.

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Length: 58 pages
Date of creation: Jan 1999
Date of revision:
Handle: RePEc:uia:iowaec:99-03

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Postal: University of Iowa, Department of Economics, Henry B. Tippie College of Business, Iowa City, Iowa 52242
Phone: (319) 335-0829
Fax: (319) 335-1956
Web page: http://tippie.uiowa.edu/economics/
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Related research
Keywords: Moral Hazard; Unemployment Insurance;

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Find related papers by JEL classification:
D8 - Microeconomics - - Information, Knowledge, and Uncertainty
J6 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies

This item is featured on the following reading lists:

  1. Canadian Macro Study Group
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.:
  1. Blank, Rebecca M & Card, David E, 1991. "Recent Trends in Insured and Uninsured Unemployment: Is There an Explanation?," The Quarterly Journal of Economics, MIT Press, vol. 106(4), pages 1157-89, November. [Downloadable!] (restricted)
    Other versions:
  2. Wang, Cheng, 1995. "Dynamic Insurance with Private Information and Balanced Budgets," Review of Economic Studies, Blackwell Publishing, vol. 62(4), pages 577-95, October. [Downloadable!] (restricted)
  3. Addison, John T & Portugal, Pedro, 1989. "Job Displacement, Relative Wage Changes, and Duration of Unemployment," Journal of Labor Economics, University of Chicago Press, vol. 7(3), pages 281-302, July. [Downloadable!] (restricted)
  4. Hansen, Gary D & Imrohoroglu, Ayse, 1992. "The Role of Unemployment Insurance in an Economy with Liquidity Constraints and Moral Hazard," Journal of Political Economy, University of Chicago Press, vol. 100(1), pages 118-42, February. [Downloadable!] (restricted)
    Other versions:
  5. Spear, Stephen E & Srivastava, Sanjay, 1987. "On Repeated Moral Hazard with Discounting," Review of Economic Studies, Blackwell Publishing, vol. 54(4), pages 599-617, October. [Downloadable!] (restricted)
  6. Phelan, C. & Townsend, R.M., 1990. "Computing Multiperiod, Information-Constrained Optima," University of Chicago - Economics Research Center 90-13, Chicago - Economics Research Center.
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  7. Atkeson, Andrew & Lucas, Robert E, Jr, 1992. "On Efficient Distribution with Private Information," Review of Economic Studies, Blackwell Publishing, vol. 59(3), pages 427-53, July. [Downloadable!] (restricted)
  8. Topel, Robert H, 1983. "On Layoffs and Unemployment Insurance," American Economic Review, American Economic Association, vol. 73(4), pages 541-59, September. [Downloadable!] (restricted)
  9. S. Rao Aiyagari & Stephen D. Williamson, 1998. "Money and dynamic credit arrangements with private information," Working Paper 9807, Federal Reserve Bank of Cleveland. [Downloadable!]
    Other versions:
  10. Steven Shavell & Laurence Weiss, 1978. "The Optimal Payment of Unemployment Insurance Benefits over Time," Cowles Foundation Discussion Papers 503, Cowles Foundation, Yale University. [Downloadable!]
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  11. Murphy, Kevin M & Topel, Robert H, 1997. "Unemployment and Nonemployment," American Economic Review, American Economic Association, vol. 87(2), pages 295-300, May. [Downloadable!] (restricted)
  12. 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.
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  13. Lars Ljungqvist & Thomas J. Sargent, 1998. "The European Unemployment Dilemma," Journal of Political Economy, University of Chicago Press, vol. 106(3), pages 514-550, June. [Downloadable!] (restricted)
    Other versions:
  14. Stephane Pallage & Christian Zimmermann, 1997. "Moral Hazard and Optimal Unemployment Insurance in an Economy with Heterogeneous Skills," Cahiers de recherche CREFE / CREFE Working Papers 54, CREFE, Université du Québec à Montréal. [Downloadable!]
  15. Wang, Cheng & Williamson, Stephen, 1996. "Unemployment insurance with moral hazard in a dynamic economy," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 44(1), pages 1-41, June. [Downloadable!] (restricted)
    Other versions:
Full references

Cited by:
(explanations, 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.)

  1. Kartik Athreya & Nicole B. Simpson, 2004. "Unsecured debt with public insurance : from bad to worse," Working Paper 03-14, Federal Reserve Bank of Richmond. [Downloadable!]
    Other versions:
  2. Yann Algan, 2004. "Incomplete Unemployment Insurance under Aggregate Fluctuations," Economics Bulletin, Economics Bulletin, vol. 5(12), pages 1-7. [Downloadable!]
    Other versions:
  3. Javier Ortega & Laurence Rioux, 2007. "On the Extent of Re-Entitlement Effects in Unemployment Compensation," IZA Discussion Papers 2807, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  4. Rasmus Lentz, 2009. "Optimal Unemployment Insurance in an Estimated Job Search Model with Savings," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(1), pages 37-57, January. [Downloadable!] (restricted)
  5. Mukoyama, Toshihiko & Sahin, Aysegül, 2004. "Repeated Moral Hazard with Persistence," Cahiers de recherche 01-2004, Centre interuniversitaire de recherche en économie quantitative, CIREQ. [Downloadable!]
    Other versions:
  6. Stephane Pallage & Christian Zimmermann, 2004. "On Voters' Attitudes Towards Unemployment Insurance Subsidies across Regions: A Canadian Simulation," Working papers 2004-34, University of Connecticut, Department of Economics. [Downloadable!]
    Other versions:
  7. Rasmus Lentz & Torben Tranaes, 2001. "Job Search and Savings: Wealth Effects and Duration Dependence," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  8. Hagedorn, Marcus & Kaul, Ashok & Mennel, Tim, 2002. "An Adverse Selection Model of Optimal Unemployment Insurance," IZA Discussion Papers 681, Institute for the Study of Labor (IZA). [Downloadable!]
  9. Mark Huggett (Georgetown University) and Juan Carlos Parra (Georgetown University), . "Quantifying the Inefficiency of the US Social Insurance System," Working Papers gueconwpa~05-05-16, Georgetown University, Department of Economics. [Downloadable!]
    Other versions:
  10. Nicola Pavoni & Giovanni L. Violante, 2005. "Optimal welfare-to-work programs," Discussion Paper / Institute for Empirical Macroeconomics 143, Federal Reserve Bank of Minneapolis. [Downloadable!]
    Other versions:
  11. Atila Abdulkadiroglu & Burhanettin Kuruscu & Aysegul Sahin, 2002. "Unemployment insurance and the role of self-insurance," Discussion Papers 0102-27, Columbia University, Department of Economics. [Downloadable!]
    Other versions:
  12. Mark Huggett & Juan Carols Parra, . "How Well Does the US Social Insurance System Provide Social Insurance?," Working Papers gueconwpa~06-06-11, Georgetown University, Department of Economics. [Downloadable!]
  13. Stéphane Pallage & Michel A. Robe & Catherine Bérubé, 2006. "The Potential of Foreign Aid as Insurance," IMF Staff Papers, Palgrave Macmillan Journals, vol. 53(3), pages 5. [Downloadable!] (restricted)
  14. Rasmus Lentz, 2003. "Optimal Unemployment Insurance in an Estimated Job Search Model with Savings," CAM Working Papers 2004-10, University of Copenhagen. Department of Economics. Centre for Applied Microeconometrics. [Downloadable!]
  15. Gilles Joseph & Thomas Weitzenblum, 2003. "Optimal Unemployment Insurance: Transitional Dynamics vs. Steady State," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(4), pages 869-884, October. [Downloadable!] (restricted)
  16. Stéphane Pallage & Christian Zimmermann, 1999. "Assurance chômage et sociétés," Cahiers de recherche du Département des sciences économiques, UQAM 9904, Université du Québec à Montréal, Département des sciences économiques. [Downloadable!]
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