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Moral Hazard Versus Liquidity and the Optimal Timing of Unemployment Benefits

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  • Rodolfo G Campos
  • J Ignacio García-Pérez
  • Iliana Reggio

Abstract

We develop a novel way of identifying the liquidity and moral hazard effects of unemployment insurance exclusively from how job-finding rates respond to unemployment benefits that vary over an unemployment spell. We derive a sufficient statistics formula for the dynamically optimal level of unemployment benefits based on these two effects. Using a regression kink design (RKD) that simultaneously exploits two kinks in the schedule of unemployment benefits, we apply our method to Spain for the years 1992–2012 and find that moral hazard effects dominated liquidity effects, suggesting that Spanish unemployment benefits exceeded the optimal level in that period.

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  • Rodolfo G Campos & J Ignacio García-Pérez & Iliana Reggio, 2022. "Moral Hazard Versus Liquidity and the Optimal Timing of Unemployment Benefits," The Economic Journal, Royal Economic Society, vol. 132(648), pages 2674-2701.
    • Handle: RePEc:oup:econjl:v:132:y:2022:i:648:p:2674-2701.
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    File URL: http://hdl.handle.net/10.1093/ej/ueac034
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    Cited by:

    1. Bruno Coquet, 2020. "Dégressivité des allocations chômage : que peut-on en attendre ?," Working Papers hal-03370452, HAL.
    2. Martin González-Rozada & Hernan Ruffo, 2022. "The welfare effects of unemployment insurance in Argentina. New estimates using changes in the schedule of transfers," Department of Economics Working Papers 2022_01, Universidad Torcuato Di Tella.

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