Optimal Unemployment Insurance
This paper considers the design of an optimal unemployment insurance system. The problem is modeled as a repeated principal-agent problem involving a risk-averse agent--the unemployed worker--and a risk-neutral principal, which cannot montor the agent's search effort. The optimal long-term contract involves a replacement ratio that decreases throughout the unemployment spell and a wage tax after reemployment that, under some mild regularity conditions, increases with the lenght of the unemployment spell. Some numerical results suggest that the gains from switching to this optimal unemployment insurance scheme could be quite large. The performance of this optimal contract is also compared to alternative liquidity provision mechanisms. Copyright 1997 by the University of Chicago.
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Volume (Year): 105 (1997)
Issue (Month): 2 (April)
Pages: 412-438
| Handle: | RePEc:ucp:jpolec:v:105:y:1997:i:2:p:412-38 |
| Contact details of provider: | Web page: http://www.journals.uchicago.edu/JPE/
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References listed on IDEAS
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- Fudenberg, Drew & Holmstrom, Bengt & Milgrom, Paul, 1990.
"Short-term contracts and long-term agency relationships,"
Journal of Economic Theory,
Elsevier, vol. 51(1), pages 1-31, June.
- Drew Fudenberg & Bengt Holmstrom & Paul Milgrom, 1987. "Short-Term Contracts and Long-Term Agency Relationships," Working papers 468, Massachusetts Institute of Technology (MIT), Department of Economics.
- Meyer, Bruce D, 1990. "Unemployment Insurance and Unemployment Spells," Econometrica, Econometric Society, vol. 58(4), pages 757-782, July.
- Bruce D. Meyer, 1988. "Unemployment Insurance And Unemployment Spells," NBER Working Papers 2546, National Bureau of Economic Research, Inc.
- Christopher Phelan & Robert M. Townsend, 1991. "Computing Multi-Period, Information-Constrained Optima," Review of Economic Studies, Oxford University Press, vol. 58(5), pages 853-881.
- 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.
- Williamson, S. & Wang, C., 1995. "Unemployment Insurance with Moral Hazard in a Dynamic Economy," Working Papers 95-09, University of Iowa, Department of Economics.
- Wang, C. & Williamson, S., 1995. "Unemployment Insurance with Moral Hazard in a Dynamic Economy," GSIA Working Papers 1995-13, Carnegie Mellon University, Tepper School of Business.
- Stephen Williamson & Cheng Wang, 1995. "Unemployment Insurance with Moral Hazard in a Dynamic Economy," Macroeconomics 9506002, EconWPA.
- Wang, Cheng & Williamson, Steve, 1996. "Unemployment Insurance with Moral Hazard in a Dynamic Economy," Staff General Research Papers Archive 5088, Iowa State University, Department of Economics.
- Stephen E. Spear & Sanjay Srivastava, 1987. "On Repeated Moral Hazard with Discounting," Review of Economic Studies, Oxford University Press, vol. 54(4), pages 599-617.
- Shavell, Steven & Weiss, Laurence, 1979. "The Optimal Payment of Unemployment Insurance Benefits over Time," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1347-1362, December.
- Steven Shavell & Laurence Weiss, 1978. "The Optimal Payment of Unemployment Insurance Benefits over Time," Cowles Foundation Discussion Papers 503, Cowles Foundation for Research in Economics, Yale University.
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