Unemployment Insurance with Hidden Savings
This paper studies the design of unemployment insurance when neither the searching effort nor the savings of an unemployed agent can be monitored. If the principal could monitor the savings, the optimal policy would leave the agent savings-constrained. With a constant absolute risk-aversion (CARA) utility function, we obtain a closed form solution of the optimal contract. Under the optimal contract, the agent is neither saving nor borrowing constrained. Counter-intuitively, his consumption declines faster than implied by Hopenhayn and Nicolini . The efficient allocation can be implemented by an increasing benefit during unemployment and a constant tax during employment.
|Date of creation:||Mar 2010|
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"Optimal Unemployment Insurance,"
RCER Working Papers
421, University of Rochester - Center for Economic Research (RCER).
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- Abraham Arpad & Nicola Pavoni, 2004.
"Efficient Allocations, with Moral Hazard and Hidden Borrowing and Lending,"
122247000000000138, UCLA Department of Economics.
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"Efficient Allocations with Moral Hazard and Hidden Borrowing and Lending: A Recursive Formulation,"
Review of Economic Dynamics,
Elsevier for the Society for Economic Dynamics, vol. 11(4), pages 781-803, October.
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- Narayana Kocherlakota, 2004.
"Figuring out the Impact of Hidden Savings on Optimal Unemployment Insurance,"
Review of Economic Dynamics,
Elsevier for the Society for Economic Dynamics, vol. 7(3), pages 541-554, July.
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- Árpád Ábrahám & Nicola Pavoni, 2008. "Optimal Income Taxation and Hidden Borrowing and Lending: The First-Order Approach in Two Periods," Carlo Alberto Notebooks 102, Collegio Carlo Alberto.
- David Card & Raj Chetty & Andrea Weber, 2006.
"Cash-on-Hand and Competing Models of Intertemporal Behavior: New Evidence from the Labor Market,"
NBER Working Papers
12639, National Bureau of Economic Research, Inc.
- David Card & Raj Chetty & Andrea Weber, 2007. "Cash-On-Hand and Competing Models of Intertemporal Behavior: New Evidence from the Labor Market," The Quarterly Journal of Economics, MIT Press, vol. 122(4), pages 1511-1560, November.
- 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.
- Shavell, Steven & Weiss, Laurence, 1979. "The Optimal Payment of Unemployment Insurance Benefits over Time," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1347-62, December.
- Rogerson, William P, 1985. "Repeated Moral Hazard," Econometrica, Econometric Society, vol. 53(1), pages 69-76, January.
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