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| Author: | Chetty, R. |
| Title: | A general formula for the optimal level of social insurance |
| Journal: | Journal of Public Economics
2006 : NOV, VOL. 90:10-11, p. 1879-1901 |
| Index terms: | unemployment insurance consumption |
| Language: | eng |
| Abstract: | Baily (1978) has showed that the optimal level of unemployment insurance (UI) in a stylized statistic model depends on only three parameters: risk aversion, the consumption-smoothing benefit of UI and the elasticity of unemployment durations with respect to the benefit rate. This study explores the key economic assumptions under which these parameters determine the optimal level of social insurance. The article shows for example that the simple reduced-form formula derived here applies with arbitrary borrowings constraints, durable consumption goods, private insurance arrangements, and search and leisure benefits of unemployment. |
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