Time-consistent unemployment insurance

Sumudu Kankanamge and Thomas Weitzenblum

No 16-657, TSE Working Papers from Toulouse School of Economics (TSE)

Abstract: This paper examines the optimal time-consistent unemployment insurance policy in a search economy with incomplete markets. In a context of repeated choice without a commitment device, we show that the optimal replacement rate depends on how frequently in time the policy can be revised. The exact relation is dependent on the political process: if the utilitarian welfare criterion is used, the optimal rate is higher the shorter the choice periodicity. Self-insurance reduces the need for the public scheme but mostly because the policy cannot be changed often enough. The comparison with an economy where a commitment device is assumed shows that the commitment rate is close to time-consistent rates with very long choice periodicities.

JEL-codes: C63 E61 J65 (search for similar items in EconPapers)
Date: 2016-05
New Economics Papers: this item is included in nep-dge, nep-ias, nep-mac and nep-pbe
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Persistent link: https://EconPapers.repec.org/RePEc:tse:wpaper:30491

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