scholarly journals Moral Hazard vs. Liquidity and Optimal Unemployment Insurance

2008 ◽  
Author(s):  
Raj Chetty
Keyword(s):  
Moral Hazard ◽  
Unemployment Insurance

Unemployment insurance and moral hazard in employment

1995 ◽  
Vol 49 (2) ◽  
pp. 205-210 ◽  
Author(s):  
Louis N. Christofides ◽  
C.J. McKenna
Keyword(s):  
Moral Hazard ◽  
Unemployment Insurance

Optimal Life Cycle Unemployment Insurance

2015 ◽  
Vol 105 (2) ◽  
pp. 816-859 ◽  
Author(s):  
Claudio Michelacci ◽  
Hernán Ruffo
Keyword(s):  
Human Capital ◽  
Life Cycle ◽  
Moral Hazard ◽  
Unemployment Insurance ◽  
Older Workers ◽  
Life Cycle Model ◽  
Cycle Model ◽  
Welfare Gains ◽  
High Return ◽  
Unemployment Risk

We argue that US welfare would rise if unemployment insurance were increased for younger and decreased for older workers. This is because the young tend to lack the means to smooth consumption during unemployment and want jobs to accumulate high-return human capital. So unemployment insurance is most valuable to them, while moral hazard is mild. By calibrating a life cycle model with unemployment risk and endogenous search effort, we find that allowing unemployment replacement rates to decline with age yields sizeable welfare gains to US workers. (JEL D91, E24, J13, J64, J65)

scholarly journals Assessing the Welfare Effects of Unemployment Benefits Using the Regression Kink Design

2015 ◽  
Vol 7 (4) ◽  
pp. 243-278 ◽  
Author(s):  
Camille Landais
Keyword(s):  
Moral Hazard ◽  
Labor Supply ◽  
Unemployment Insurance ◽  
Welfare Effects ◽  
Time Profile ◽  
Unemployment Benefits ◽  
Search Effort ◽  
Benefit Level ◽  
The Us ◽  
Regression Kink Design

I show how, in the tradition of the dynamic labor supply literature, one can identify the moral hazard effects and liquidity effects of unemployment insurance (UI) using variations along the time profile of unemployment benefits. I use this strategy to investigate the anatomy of labor supply responses to UI. I identify the effect of benefit level and potential duration in the regression kink design using kinks in the schedule of benefits in the US. My results suggest that the response of search effort to UI benefits is driven as much by liquidity effects as by moral hazard effects. (JEL D82, J22, J65)

scholarly journals Optimal unemployment insurance with monitoring

10.3982/qe564 ◽  
2019 ◽  
Vol 10 (2) ◽  
pp. 693-733 ◽  
Author(s):  
Ofer Setty
Keyword(s):  
Quantitative Analysis ◽  
Moral Hazard ◽  
Unemployment Insurance ◽  
Job Search ◽  
Private Information ◽  
Unemployment Benefits ◽  
Economic Forces ◽  
The Government ◽  
Monitoring Precision ◽  
Period Model

I model job‐search monitoring in the optimal unemployment insurance framework, in which job‐search effort is the worker's private information. In the model, monitoring provides costly information upon which the government conditions unemployment benefits. Using a simple one‐period model with two effort levels, I show analytically that the monitoring precision increases and the utility spread decreases if and only if the inverse of the worker's utility in consumption has a convex derivative. The quantitative analysis that follows extends the model by allowing a continuous effort and separations from employment. That analysis highlights two conflicting economic forces affecting the optimal precision of monitoring with respect to the generosity of the welfare system: higher promised utility is associated not only with a higher cost of moral hazard, but also with lower effort and lower value of employment. The result is an inverse U‐shaped precision profile with respect to promised utility.

Informal Labor and the Efficiency Cost of Social Programs: Evidence from Unemployment Insurance in Brazil

2021 ◽  
Vol 13 (3) ◽  
pp. 167-206
Author(s):  
François Gerard ◽  
Gustavo Gonzaga
Keyword(s):  
United States ◽  
Moral Hazard ◽  
Labor Markets ◽  
Unemployment Insurance ◽  
The United States ◽  
Social Programs ◽  
Informal Labor ◽  
Experimental Variation ◽  
Efficiency Cost ◽  
Quasi Experimental

It is widely believed that the presence of a large informal sector increases the efficiency cost of social programs in developing countries. We evaluate such claims for the case of unemployment insurance (UI) by combining an optimal UI framework with comprehensive data from Brazil. Using quasi-experimental variation in potential UI duration, we find clear evidence for the usual moral hazard problem that UI reduces incentives to return to a formal job. Yet, the associated efficiency cost is lower than it is in the United States, and it is lower in labor markets with higher informality within Brazil. This is because formal reemployment rates are lower to begin with where informality is higher, so that a larger share of workers would draw UI benefits absent any moral hazard. In sum, efficiency concerns may actually become more relevant as an economy formalizes. (JEL J65, O15, O17, E26, D82, J46)

UI ELIGIBILITY RULE, MORAL HAZARD, AND OPTIMAL UNEMPLOYMENT TRANSFER SCHEME

2017 ◽  
Vol 23 (4) ◽  
pp. 1586-1621
Author(s):  
Min Zhang ◽  
Jia Pan
Keyword(s):  
United States ◽  
Moral Hazard ◽  
Unemployment Insurance ◽  
Strategic Behavior ◽  
The United States ◽  
Imperfect Monitoring ◽  
Transfer Scheme ◽  
Moral Hazards ◽  
Job Searches ◽  
Key Features

This paper derives the optimal unemployment insurance (UI) transfer scheme, UI benefits, and UI contribution fees: When a worker has to earn his or her UI eligibility through work, the UI benefits do not last forever, and the UI agency has imperfect monitoring power on the strategic behavior of the worker. We show that the consideration of the UI eligibility rule generates the effective entitlement effect, which serves as an additional incentive device and alters the nature of the optimal UI transfer scheme established in literature. In contrast with previous studies, we find that when the effective entitlement effect is large, it completely removes the moral hazards in job searches, job acceptances, and job quits. As a result, the optimal UI benefits and contribution fees become constant. Calibrated to the data in the United States, the model reproduces some key features of the existing UI system.

scholarly journals Risk-Based Selection in Unemployment Insurance: Evidence and Implications

2021 ◽  
Vol 111 (4) ◽  
pp. 1315-1355
Author(s):  
Camille Landais ◽  
Arash Nekoei ◽  
Peter Nilsson ◽  
David Seim ◽  
Johannes Spinnewijn
Keyword(s):  
Willingness To Pay ◽  
Moral Hazard ◽  
Adverse Selection ◽  
Unemployment Insurance ◽  
Direct Evidence ◽  
Unique Feature ◽  
Ui Design ◽  
Unemployment Risk ◽  
Unemployment Policy

This paper studies whether adverse selection can rationalize a universal mandate for unemployment insurance (UI). Building on a unique feature of the unemployment policy in Sweden, where workers can opt for supplemental UI coverage above a minimum mandate, we provide the first direct evidence for adverse selection in UI and derive its implications for UI design. We find that the unemployment risk is more than twice as high for workers who buy supplemental coverage. Exploiting variation in risk and prices, we show how 25–30 percent of this correlation is driven by risk-based selection, with the remainder driven by moral hazard. Due to the moral hazard and despite the adverse selection we find that mandating the supplemental coverage to individuals with low willingness-to-pay would be suboptimal. We show under which conditions a design leaving choice to workers would dominate a UI system with a single mandate. In this design, using a subsidy for supplemental coverage is optimal and complementary to the use of a minimum mandate. (JEL D82, G22, J65)

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