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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

    (University of Edinburgh)

  • Tim Worrall

    (Keele University)

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://128.118.178.162/eps/pe/papers/0211/0211002.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Public Economics with number 0211002.

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Length: 35 pages
Date of creation: 05 Nov 2002
Date of revision:
Handle: RePEc:wpa:wuwppe:0211002

Note: Type of Document - pdf; prepared on pc; pages: 35
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Web page: http://128.118.178.162

Related research

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

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References

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  1. DiTella, Rafael & MacCulloch, Robert, 1999. "Informal family insurance and the design of the welfare state," ZEI Working Papers B 23-1999, ZEI - Center for European Integration Studies, University of Bonn.
  2. 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.
  3. 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.
  4. P. A. Diamond & J. A. Mirrlees, 1977. "A Model of Social Insurance With Variable Retirement," Working papers 210, Massachusetts Institute of Technology (MIT), Department of Economics.
  5. Thomas, Jonathan & Worrall, Tim, 1988. "Self-enforcing Wage Contracts," Review of Economic Studies, Wiley Blackwell, vol. 55(4), pages 541-54, October.
  6. Hanno Lustig & Yi-Li Chien, 2005. "The Market Price of Aggregate Risk and the Wealth Distribution," NBER Working Papers 11132, National Bureau of Economic Research, Inc.
  7. 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.
  8. Dirk Krueger & Fabrizio Perri, 1999. "Risk sharing: private insurance markets or redistributive taxes?," Staff Report 262, Federal Reserve Bank of Minneapolis.
  9. 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.
  10. 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.
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