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Optimal Unemployment Insurance with Monitoring and Sanctions

  • Boone, Jan

    (Department of Economics)

  • Fredriksson, Peter

    ()

    (Department of Economics)

  • Holmlund, Bertil

    ()

    (Department of Economics)

  • van Ours, Jan

    ()

    (CentER for Economic Research)

This paper analyzes 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 labor markets.

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Paper provided by Uppsala University, Department of Economics in its series Working Paper Series with number 2001:20.

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Length: 30 pages
Date of creation: 02 Nov 2001
Date of revision:
Publication status: Published in Economic Journal, 2007, pages 399-421.
Handle: RePEc:hhs:uunewp:2001_020
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Department of Economics, Uppsala University, P. O. Box 513, SE-751 20 Uppsala, Sweden

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Fax: + 46 18 471 14 78
Web page: http://www.nek.uu.se/
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