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Unemployment Insurance in a Sticky-Price Model with Worker Moral Hazard

  • Gregory Erin Givens

This paper studies the role of unemployment insurance in a sticky-price model that features an efficiency-wage view of the labor market based on unobservable effort. The risk-sharing mechanism central to the model permits, but does not force, agents to be fully insured. Structural parameters are estimated using a maximum-likelihood procedure on US data. Formal hypothesis tests reveal that the data favor a model in which agents only partially insure each other against employment risk. The results also show that limited risk sharing helps the model capture many salient properties of the business cycle that a restricted version with full insurance fails to explain.

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File URL: http://capone.mtsu.edu/berc/working/insurance.pdf
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Paper provided by Middle Tennessee State University, Department of Economics and Finance in its series Working Papers with number 200807.

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Date of creation: Jul 2008
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Handle: RePEc:mts:wpaper:200807
Contact details of provider: Web page: http://www.mtsu.edu/~berc/working/Economics_Working_Papers.html
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