Unemployment, Crime and Social Insurance

Iain Long and Vito Polito

No E2014/9, Cardiff Economics Working Papers from Cardiff University, Cardiff Business School, Economics Section

Abstract: We study an individual's incentive to search for a job in the presence of random criminal opportunities. These opportunities extenuate moral hazard, as the individual sometimes commits crime rather than searching. Even when he searches, he applies less effort. We then revisit the design of optimal unemployment insurance in this environment. If the individual is more likely to remain unemployed and unpunished when he commits crime than when he searches for a job (as suggested by empirical studies), declining unemployment benefits reduce the payoff from crime relative to that from searching. Compared to the canonical models of optimal unemployment insurance, this provides a further incentive to reduce benefits over time.

Keywords: Unemployment insurance; Moral hazard; Crime; Recursive contracts (search for similar items in EconPapers)
JEL-codes: C61 D82 H55 J65 K42 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2014-07
New Economics Papers: this item is included in nep-cta, nep-lab and nep-law
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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