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Risk aversion does not justify the introduction of mandatory unemployment insurance in the shirking model

  • Julia Fath
  • Clemens Fuest

The introduction of unemployment insurance is usually thought to increase welfare if workers are sufficiently risk averse. We analyse the effects of introducing mandatory unemployment insurance in the shirking model. Surprisingly, we find that introducing unemployment insurance reduces welfare irrespective of the degree of risk aversion.

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Paper provided by University of Cologne, Department of Economics in its series Working Paper Series in Economics with number 19.

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Date of creation: 09 Aug 2005
Date of revision:
Handle: RePEc:kls:series:0019
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  1. Holmlund, Bertil, 1997. "Unemployment Insurance in Theory and Practice," Working Paper Series 1997:25, Uppsala University, Department of Economics.
  2. Daron Acemoglu & Robert Shimer, 1998. "Efficient Unemployment Insurance," NBER Working Papers 6686, National Bureau of Economic Research, Inc.
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