Voting on Unemployment Insurance Generosity

Stephane Pallage () and Christian Zimmermann ()

No 64, Cahiers de recherche CREFE / CREFE Working Papers from CREFE, Université du Québec à Montréal

Abstract: In this paper, we show that in a dynamic general equilibrium economy, the presence of moral hazard need not induce large cuts in optimal unemployment insurance benefits when agents are asked to vote on these benefits. We find that it takes a quite large proportion of "shirkers" to bend the generosity of the unemployment insurance program desired by the median voter. This result stands in sharp contrast to the extant literature. In addtion to their differences in asset holdings, agents in our economy are heterogeneous in skills and may differ in their wage as well as in their transition in and out of unemployment. Our results have important implications in the light of recent unemployment insurance reforms.

Dans cette étude, nous montrons que le risque moral joue un maigre rôle dans la détermination de la générosité de l'assurance chômage optimale lors d'un vote. Dans une économie d'équilibre général dynamique, nous trouvons que seule la présence d'un nombre très important d'abuseurs conduit à une perte significative de générosité dans les allocations d'assurance chômage. Ce résultat va à l'encontre de la littérature existante. En plus de différences dans les actifs détenus, les agents modélisés diffèrent dans leurs habiletés, ce qui se traduit par des différences de salaires et de probabilités de chômage. Ces résultats peuvent avoir des conséquences importantes au vu des réformes récentes de l'assurance chômage.

Keywords: Unemployment Insurance; Shirking; Heterogeneity; Voting (search for similar items in EconPapers)
JEL-codes: J65 E24 D7 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cdm, nep-dge, nep-mic, nep-pbe, nep-pol and nep-pub
Date: 1998-07
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Published in International Economic Review, (42(4), pp. 903-923, November 2001

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