IDEAS home Printed from https://ideas.repec.org/p/fip/fedlwp/2012-024.html
   My bibliography  Save this paper

Unemployment insurance fraud and optimal monitoring

Author

Listed:
  • David L. Fuller
  • B. Ravikumar
  • Yuzhe Zhang

Abstract

The most prevalent incentive problem in the U.S. unemployment insurance system is that individuals collect unemployment benefits while being gainfully employed. We show how the unemployment insurance authority can efficiently use a combination of tax/subsidy and monitoring to prevent such fraud. The optimal policy monitors the unemployed at fixed intervals. Employment tax is nonmonotonic: it increases between verifications but decreases after a verification. Unemployment benefits are relatively flat between verifications but decrease sharply after a verification.

Suggested Citation

  • David L. Fuller & B. Ravikumar & Yuzhe Zhang, 2012. "Unemployment insurance fraud and optimal monitoring," Working Papers 2012-024, Federal Reserve Bank of St. Louis.
  • Handle: RePEc:fip:fedlwp:2012-024
    as

    Download full text from publisher

    File URL: http://research.stlouisfed.org/wp/2012/2012-024.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Zhang, Yuzhe, 2009. "Dynamic contracting with persistent shocks," Journal of Economic Theory, Elsevier, vol. 144(2), pages 635-675, March.
    2. David L. Fuller & B. Ravikumar & Yuzhe Zhang, 2012. "Unemployment insurance fraud," Economic Synopses, Federal Reserve Bank of St. Louis.
    3. Ravikumar, B. & Zhang, Yuzhe, 2012. "Optimal auditing and insurance in a dynamic model of tax compliance," Theoretical Economics, Econometric Society, vol. 7(2), May.
    4. Álvarez-Parra, Fernando & Sánchez, Juan M., 2009. "Unemployment insurance with a hidden labor market," Journal of Monetary Economics, Elsevier, vol. 56(7), pages 954-967, October.
    5. David L. Fuller & B. Ravikumar & Yuzhe Zhang, 2015. "Unemployment Insurance Fraud and Optimal Monitoring," American Economic Journal: Macroeconomics, American Economic Association, vol. 7(2), pages 249-290, April.
    6. Ravikumar, B & Zhang, Yuzhe, 2010. "Optimal auditing in a dynamic model of tax compliance," MPRA Paper 22924, University Library of Munich, Germany.
    7. Pavoni, Nicola, 2007. "On optimal unemployment compensation," Journal of Monetary Economics, Elsevier, vol. 54(6), pages 1612-1630, September.
    8. Setty, Ofer, 2009. "Optimal Unemployment Insurance with Monitoring," MPRA Paper 18188, University Library of Munich, Germany.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Long, Iain W. & Polito, Vito, 2015. "Cash-in-Hand, Benefit Fraud and Unemployment Insurance," Cardiff Economics Working Papers E2015/4, Cardiff University, Cardiff Business School, Economics Section.
    2. David L. Fuller & B. Ravikumar & Yuzhe Zhang, 2015. "Unemployment Insurance Fraud and Optimal Monitoring," American Economic Journal: Macroeconomics, American Economic Association, vol. 7(2), pages 249-290, April.
    3. Georges Dionne, 2012. "The Empirical Measure of Information Problems with Emphasis on Insurance Fraud and Dynamic Data," Cahiers de recherche 1233, CIRPEE.
    4. David Fuller & Stephane Auray & Damba Lkhagvasuren, 2013. "Unemployment Insurance Take-up Rates in an Equilibrium Search Model," Working Papers 13001, Concordia University, Department of Economics.

    More about this item

    Keywords

    Unemployment ; Insurance;

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fedlwp:2012-024. 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: (Kathy Cosgrove). General contact details of provider: http://edirc.repec.org/data/frbslus.html .

    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 CitEc recognized a reference but did not link an item in RePEc 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.