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| Author: | Hopenhayn, H. A. Nicolini, J. P. |
| Title: | Optimal unemployment insurance |
| Journal: | Journal of Political Economy
1997 : APR, VOL. 105:2, p. 412-438 |
| Index terms: | UNEMPLOYMENT INSURANCE SYSTEMS DESIGN MODELS |
| Language: | eng |
| Abstract: | This article considers the design of an optimal unemployment insurance system in which the problem is modeled as a repeated principalagent problem involving a risk-averse agent (unemployed worker) and a risk-neutral principal, which cannot monitor the agent's search effort. The optimal long-term contract subject to associated incentive constraints is characterized. It involves a replacement ratio that decreases throughout the unemployment spell and a wage tax after reemployment that increases with the length of the unemployment spell. The gains from switching to optimal unemployment insurance scheme could be quite large. The performance of the optimal contract is also compared to alternative liquidity provision mechanismus. |
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