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The Role of Unemployment Insurance in an Economy with Liquidity Constraints and Moral Hazard

Author Info

Listed author(s):
  • Gary D. Hansen

    (UCLA)

  • Ayse Imrohoroglu

Abstract

The potential welfare benefits of unemployment insurance, along with the optimal replacement ratio, are studied using a quantitative dynamic general equilibrium model. To provide a role for unemployment insurance, agents in the authors' economy face exogenous idiosyncratic employment shocks and are unable to borrow or insure themselves through private markets. In the absence of moral hazard, replacement ratios as high as 0.65 are optimal and the welfare benefits of unemployment insurance are quite large. However, if there is moral hazard and the replacement ratio is not set optimally, the economy can be much worse-off than it would be without unemployment insurance. Copyright 1992 by University of Chicago Press.

(This abstract was borrowed from another version of this item.)

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File URL: http://www.econ.ucla.edu/workingpapers/wp583.pdf
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Paper provided by UCLA Department of Economics in its series UCLA Economics Working Papers with number 583.

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Date of creation: 01 Jan 1990
Handle: RePEc:cla:uclawp:583
Contact details of provider: Web page: http://www.econ.ucla.edu/

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  1. David Easley & Nicholas M. Kiefer & Uri Possen, 1985. "An Equilibrium Analysis of Optimal Unemployment Insurance and Taxation," The Quarterly Journal of Economics, Oxford University Press, vol. 100(Supplemen), pages 989-1010.
  2. Mehra, Rajnish & Prescott, Edward C., 1985. "The equity premium: A puzzle," Journal of Monetary Economics, Elsevier, vol. 15(2), pages 145-161, March.
  3. repec:fth:prinin:243 is not listed on IDEAS
  4. Hansen, Gary D., 1985. "Indivisible labor and the business cycle," Journal of Monetary Economics, Elsevier, vol. 16(3), pages 309-327, November.
  5. Topel, Robert H, 1983. "On Layoffs and Unemployment Insurance," American Economic Review, American Economic Association, vol. 73(4), pages 541-559, September.
  6. Dale T. Mortensen, 1977. "Unemployment Insurance and Job Search Decisions," ILR Review, Cornell University, ILR School, vol. 30(4), pages 505-517, July.
  7. Flemming, J. S., 1978. "Aspects of optimal unemployment insurance : Search, leisure, savings and capital market imperfections," Journal of Public Economics, Elsevier, vol. 10(3), pages 403-425, December.
  8. Burdett, Kenneth & Wright, Randall, 1989. "Unemployment Insurance and Short-Time Compensation: The Effects on Layoffs, Hours per Worker, and Wages," Journal of Political Economy, University of Chicago Press, vol. 97(6), pages 1479-1496, December.
  9. Rebecca M. Blank & David E. Card, 1991. "Recent Trends in Insured and Uninsured Unemployment: Is There an Explanation?," The Quarterly Journal of Economics, Oxford University Press, vol. 106(4), pages 1157-1189.
  10. Rogerson, Richard, 1988. "Indivisible labor, lotteries and equilibrium," Journal of Monetary Economics, Elsevier, vol. 21(1), pages 3-16, January.
  11. Finis Welch, 1977. "What Have We Learned from Empirical Studies of Unemployment Insurance?," ILR Review, Cornell University, ILR School, vol. 30(4), pages 451-461, July.
  12. Kim B. Clark & Lawrence H. Summers, 1982. "Unemployment Insurance and Labor Force Transitions," NBER Working Papers 0920, National Bureau of Economic Research, Inc.
  13. Wright, Randall, 1986. "The redistributive roles of unemployment insurance and the dynamics of voting," Journal of Public Economics, Elsevier, vol. 31(3), pages 377-399, December.
  14. Ehrenberg, Ronald G & Oaxaca, Ronald L, 1976. "Unemployment Insurance, Duration of Unemployment, and Subsequent Wage Gain," American Economic Review, American Economic Association, vol. 66(5), pages 754-766, December.
  15. Feldstein, Martin S, 1978. "The Effect of Unemployment Insurance on Temporary Layoff Unemployment," American Economic Review, American Economic Association, vol. 68(5), pages 834-846, December.
  16. Martin Neil Baily, 1977. "Unemployment Insurance as Insurance for Workers," ILR Review, Cornell University, ILR School, vol. 30(4), pages 495-504, July.
  17. Imrohoruglu, Ayse, 1989. "Cost of Business Cycles with Indivisibilities and Liquidity Constraints," Journal of Political Economy, University of Chicago Press, vol. 97(6), pages 1364-1383, December.
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Blog mentions

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  1. New insights on optimal unemployment insurance
    by Economic Logician in Economic Logic on 2008-12-23 12:36:00

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  1. > Labor Economics > Unemployment Insurance > Optimal Unemployment Insurance
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