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Moral hazard, optimal unemployment insurance, and experience rating

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  • Wang, Cheng
  • Williamson, Stephen D.

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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  • Wang, Cheng & Williamson, Stephen D., 2002. "Moral hazard, optimal unemployment insurance, and experience rating," Journal of Monetary Economics, Elsevier, vol. 49(7), pages 1337-1371, October.
    • Handle: RePEc:eee:moneco:v:49:y:2002:i:7:p:1337-1371
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    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • J6 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers

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