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Voting on Unemployment Insurance Generosity

In this paper, we show that in a dynamic general equilibrium economy, the presence of moral hazard need not induce large cuts in optimal unemployment insurance benefits when agents are asked to vote on these benefits. We find that it takes a quite large proportion of "shirkers" to bend the generosity of the unemployment insurance program desired by the median voter. This result stands in sharp contrast to the extant literature. In addtion to their differences in asset holdings, agents in our economy are heterogeneous in skills and may differ in their wage as well as in their transition in and out of unemployment. Our results have important implications in the light of recent unemployment insurance reforms. Dans cette étude, nous montrons que le risque moral joue un maigre rôle dans la détermination de la générosité de l'assurance chômage optimale lors d'un vote. Dans une économie d'équilibre général dynamique, nous trouvons que seule la présence d'un nombre très important d'abuseurs conduit à une perte significative de générosité dans les allocations d'assurance chômage. Ce résultat va à l'encontre de la littérature existante. En plus de différences dans les actifs détenus, les agents modélisés diffèrent dans leurs habiletés, ce qui se traduit par des différences de salaires et de probabilités de chômage. Ces résultats peuvent avoir des conséquences importantes au vu des réformes récentes de l'assurance chômage.

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File URL: http://www.unites.uqam.ca/eco/CREFE/cahiers/cah64.ps
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File URL: http://www.unites.uqam.ca/eco/CREFE/cahiers/cah64.pdf
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Paper provided by CREFE, Université du Québec à Montréal in its series Cahiers de recherche CREFE / CREFE Working Papers with number 64.

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Length: 18 pages
Date of creation: Jul 1998
Date of revision:
Publication status: published in International Economic Review, (42(4), pp. 903-923, November 2001
Handle: RePEc:cre:crefwp:64
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  1. Nickell, Stephen, 1979. "Education and Lifetime Patterns of Unemployment," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages S117-31, October.
  2. Gary D. Hansen & Ayse Imrohoroglu, 1990. "The Role of Unemployment Insurance in an Economy with Liquidity Constraints and Moral Hazard," UCLA Economics Working Papers 583, UCLA Department of Economics.
  3. 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.
  4. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-70, November.
  5. Richard Rogerson, 2010. "Indivisible Labor, Lotteries and Equilibrium," Levine's Working Paper Archive 250, David K. Levine.
  6. Baily, Martin Neil, 1978. "Some aspects of optimal unemployment insurance," Journal of Public Economics, Elsevier, vol. 10(3), pages 379-402, December.
  7. Rogerson, Richard & Wright, Randall, 1988. "Involuntary unemployment in economies with efficient risk sharing," Journal of Monetary Economics, Elsevier, vol. 22(3), pages 501-515.
  8. Daron Acemoglu & Robert Shimer, 1999. "Efficient Unemployment Insurance," Journal of Political Economy, University of Chicago Press, vol. 107(5), pages 893-928, October.
  9. Joao Gomes & Jeremy Greenwood & Sergio T. Rebelo, 2001. "Equilibrium Unemployment," RCER Working Papers 479, University of Rochester - Center for Economic Research (RCER).
  10. 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.
  11. Andolfatto, David & Gomme, Paul, 1996. "Unemployment insurance and labor-market activity in Canada," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 44(1), pages 47-82, June.
  12. 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.
  13. Jacob Mincer, 1991. "Education and Unemployment," NBER Working Papers 3838, National Bureau of Economic Research, Inc.
  14. Gary Hansen, 2010. "Indivisible Labor and the Business Cycle," Levine's Working Paper Archive 233, David K. Levine.
  15. Hassler, John & Rodriguez Mora, Jose V., 1999. "Employment turnover and the public allocation of unemployment insurance," Journal of Public Economics, Elsevier, vol. 73(1), pages 55-83, July.
  16. Jonathan Gruber, 1994. "The Consumption Smoothing Benefits of Unemployment Insurance," NBER Working Papers 4750, National Bureau of Economic Research, Inc.
  17. Greenwood, Jeremy & Huffman, Gregory W., 1987. "A dynamic equilibrium model of inflation and unemployment," Journal of Monetary Economics, Elsevier, vol. 19(2), pages 203-228, March.
  18. 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.
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