IDEAS home Printed from
MyIDEAS: Login to save this paper or follow this series

Optimal Unemployment Insurance with Monitoring and Sanctions

  • Boone, Jan
  • Fredriksson, Peter
  • Holmlund, Bertil
  • van Ours, Jan C

This Paper analyses the design of optimal unemployment insurance in a search equilibrium framework where search effort among the unemployed is not perfectly observable. We examine to what extent the optimal policy involves monitoring of search effort and benefit sanctions if observed search is deemed insufficient. We find that introducing monitoring and sanctions represents a welfare improvement for reasonable estimates of monitoring costs; this conclusion holds both relative to a system featuring indefinite payments of benefits and a system with a time limit on unemployment benefit receipt. The optimal sanction rates implied by our calibrated model are much higher than the sanction rates typically observed in European labour markets

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
Download Restriction: CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3082.

in new window

Date of creation: Nov 2001
Date of revision:
Handle: RePEc:cpr:ceprdp:3082
Contact details of provider: Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ.
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820

Order Information: Email:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Dale T. Mortensen, 1977. "Unemployment insurance and job search decisions," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 30(4), pages 505-517, July.
  2. Terry R. Johnson & Daniel H. Klepinger, 1994. "Experimental Evidence on Unemployment Insurance Work-Search Policies," Journal of Human Resources, University of Wisconsin Press, vol. 29(3), pages 665-717.
  3. Polinsky, Mitchell & Shavell, Steven, 1979. "The Optimal Tradeoff between the Probability and Magnitude of Fines," American Economic Review, American Economic Association, vol. 69(5), pages 880-91, December.
  4. 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.
  5. Bertil Holmlund, 2002. "International spillover effects of sectoral tax differentiation in unionized economies," Oxford Economic Papers, Oxford University Press, vol. 54(2), pages 207-229, April.
  6. Abbring, Jaap H. & van den Berg, Gerard J., 2002. "Dynamically assigned treatments: duration models, binary treatment models, and panel data models," Working Paper Series 2002:20, IFAU - Institute for Evaluation of Labour Market and Education Policy.
  7. Gerard J. van den Berg & Bas van der Klaauw & Jan C. van Ours, 1998. "Punitive Sanctions and the Transition Rate from Welfare to Work," Tinbergen Institute Discussion Papers 98-076/3, Tinbergen Institute.
  8. Dale T Mortensen & Christopher Pissarides, 2001. "Taxes, subsidies and equilibrium labor market outcomes," LSE Research Online Documents on Economics 2075, London School of Economics and Political Science, LSE Library.
  9. Hoon, Hian Teck & Phelps, Edmund S., 1997. "Growth, wealth and the natural rate: Is Europe's jobs crisis a growth crisis?," European Economic Review, Elsevier, vol. 41(3-5), pages 549-557, April.
  10. Johansson, Per & Palme, Mårten, 2001. "Assessing the effect of public policy on worker absenteeism," Working Paper Series 2002:13, IFAU - Institute for Evaluation of Labour Market and Education Policy.
  11. Christopher A. Pissarides, 1997. "The Impact of Employment Tax Cuts on Unemployment and Wages: The Role of Unemployment Benefits and Tax Structure," CEP Discussion Papers dp0361, Centre for Economic Performance, LSE.
  12. Boone, J. & Bovenberg, A.L., 2000. "Optimal Labour Taxation and Search," Discussion Paper 2000-17, Tilburg University, Center for Economic Research.
  13. Lindeboom, Maarten & Portrait, France & van den Berg, Gerard, 2002. "An econometric analysis of the mental-health effects of major events in the life of older individuals," Working Paper Series 2002:19, IFAU - Institute for Evaluation of Labour Market and Education Policy.
  14. Gary S. Becker, 1968. "Crime and Punishment: An Economic Approach," Journal of Political Economy, University of Chicago Press, vol. 76, pages 169.
  15. Fredriksson, Peter & Holmlund, Bertil, 2001. "Optimal Unemployment Insurance in Search Equilibrium," Journal of Labor Economics, University of Chicago Press, vol. 19(2), pages 370-99, April.
  16. Calmfors, Lars & Forslund, Anders & Hemström, Maria, 2002. "Does Active Labour Market Policy Work? Lessons from the Swedish Experiences," Seminar Papers 700, Stockholm University, Institute for International Economic Studies.
  17. Johansson, Kerstin, 2002. "Labor market programs, the discouraged-worker effect, and labor force participation," Working Paper Series 2002:9, IFAU - Institute for Evaluation of Labour Market and Education Policy.
  18. Hopenhayn, Hugo A & Nicolini, Juan Pablo, 1997. "Optimal Unemployment Insurance," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 412-38, April.
  19. Sorensen, Peter Birch, 1999. "Optimal tax progressivity in imperfect labour markets," Labour Economics, Elsevier, vol. 6(3), pages 435-452, September.
  20. van den Berg, G. & van der Klaauw, B. & van Ours, J.C., 1998. "Punitive sanctions and the transition from welfare to work," Discussion Paper 1998-56, Tilburg University, Center for Economic Research.
  21. Jan Boone & Jan C. van Ours, 2000. "Modeling Financial Incentives to Get Unemployed Back to Work," Econometric Society World Congress 2000 Contributed Papers 0973, Econometric Society.
  22. Skedinger, Per, 2002. "Minimum wages and employment in Swedish hotels and restaurants," Working Paper Series 2002:18, IFAU - Institute for Evaluation of Labour Market and Education Policy.
  23. Kleven, Henrik Jacobsen & Richter, Wolfram F & Sorensen, Peter Birch, 2000. "Optimal Taxation with Household Production," Oxford Economic Papers, Oxford University Press, vol. 52(3), pages 584-94, July.
  24. Cahuc, Pierre & Lehmann, Etienne, 2000. "Should unemployment benefits decrease with the unemployment spell?," Journal of Public Economics, Elsevier, vol. 77(1), pages 135-153, July.
  25. Steven Shavell & A. Mitchell Polinsky, 2000. "The Economic Theory of Public Enforcement of Law," Journal of Economic Literature, American Economic Association, vol. 38(1), pages 45-76, March.
  26. Niels Fredriksen & Peter Hansen & Henrik Jacobsen & Peter Sørensen, 1995. "Subsidising consumer services: effects on employment, welfare and the informal economy," Fiscal Studies, Institute for Fiscal Studies, vol. 16(2), pages 71-93, May.
  27. Jeffrey Smith, 2000. "Is the Threat of Training More Effective than Training Itself? Experimental Evidence from the UI System," Econometric Society World Congress 2000 Contributed Papers 1660, Econometric Society.
  28. Sacklén, Hans, 2002. "An evaluation of the Swedish trainee replacement schemes," Working Paper Series 2002:7, IFAU - Institute for Evaluation of Labour Market and Education Policy.
  29. Kolm, A.-S., 1998. "Labour Taxation in a Unionised Economy with Home Production," Papers 1998-7, Uppsala - Working Paper Series.
  30. Phelps, Edmund S & Zoega, Gylfi, 1998. "Natural-Rate Theory and OECD Unemployment," Economic Journal, Royal Economic Society, vol. 108(448), pages 782-801, May.
  31. Layard, Richard & Nickell, Stephen & Jackman, Richard, 2005. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780199279173, July.
  32. Bovenberg, A Lans & van der Ploeg, Frederick, 1998. " Tax Reform, Structural Unemployment and the Environment," Scandinavian Journal of Economics, Wiley Blackwell, vol. 100(3), pages 593-610, September.
  33. C. Benassi & A. E. Scorcu, 2002. "Indexation Rules, Risk Aversion, and Imperfect Information," Working Papers 450, Dipartimento Scienze Economiche, Universita' di Bologna.
  34. Nordström Skans, Oskar, 2002. "Age effects in Swedish local labour markets," Working Paper Series 2002:11, IFAU - Institute for Evaluation of Labour Market and Education Policy.
  35. Garoupa, Nuno, 1997. " The Theory of Optimal Law Enforcement," Journal of Economic Surveys, Wiley Blackwell, vol. 11(3), pages 267-95, September.
  36. Arulampalam, W. & Robin A. Naylor & Jeremy P. Smith, 2002. "University of Warwick," Royal Economic Society Annual Conference 2002 9, Royal Economic Society.
  37. Bertil Holmlund, 2001. "Labor Taxation in Search Equilibrium with Home Production," CESifo Working Paper Series 462, CESifo Group Munich.
  38. Baily, Martin Neil, 1978. "Some aspects of optimal unemployment insurance," Journal of Public Economics, Elsevier, vol. 10(3), pages 379-402, December.
  39. Broström, Göran & Palme, Mårten & Johansson, Per, 2002. "Economic incentives and gender differences in work absence behavior," Working Paper Series 2002:14, IFAU - Institute for Evaluation of Labour Market and Education Policy.
  40. 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.
  41. repec:oup:restud:v:57:y:1990:i:2:p:279-98 is not listed on IDEAS
  42. Jaap H. Abbring & Gerard J. Berg & Jan C. Ours, 2005. "The Effect of Unemployment Insurance Sanctions on the Transition Rate from Unemployment to Employment," Economic Journal, Royal Economic Society, vol. 115(505), pages 602-630, 07.
  43. Sandmo, Agnar, 1990. "Tax Distortions and Household Production," Oxford Economic Papers, Oxford University Press, vol. 42(1), pages 78-90, January.
  44. repec:rus:hseeco:10108 is not listed on IDEAS
  45. Eriksson, Stefan, 2002. "Imperfect information, wage formation, and the employability of the unemployed," Working Paper Series 2002:17, IFAU - Institute for Evaluation of Labour Market and Education Policy.
  46. Kolm, Ann-Sofie, 1998. "Differentiated payroll taxes, unemployment, and welfare," Journal of Public Economics, Elsevier, vol. 70(2), pages 255-271, November.
  47. Hian Hoon, 1996. "Payroll taxes and VAT in a labor-turnover model of the ‘natural rate’," International Tax and Public Finance, Springer, vol. 3(3), pages 369-383, July.
  48. Broersma, Lourens & Van Ours, Jan C., 1999. "Job searchers, job matches and the elasticity of matching," Labour Economics, Elsevier, vol. 6(1), pages 77-93, March.
  49. van Ours, J.C. & Broersma, L., 1999. "Job searchers, job matches and the elasticity of matching," Other publications TiSEM c199f354-b73c-49b6-84f6-e, Tilburg University, School of Economics and Management.
  50. Berg, Gerard J. van den & Klaauw, Bas van der & Ours, Jan C. van, 1998. "Punitive sanctions and the transition rate from welfare to work," Serie Research Memoranda 0033, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
  51. Johansson, Kerstin, 2002. "Labor Market Programs, the Discouraged-Worker Effect, and Labor Force Participation," Working Paper Series 2002:16, Uppsala University, Department of Economics.
  52. P. B. Sørensen, 1997. "Public finance solutions to the European unemployment problem?," Economic Policy, CEPR;CES;MSH, vol. 12(25), pages 221-264, October.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:3082. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()

The email address of this maintainer does not seem to be valid anymore. Please ask to update the entry or send us the correct address

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.