UNEMPLOYED BUT OPTIMISTIC: OPTIMAL INSURANCE DESIGN WITH BIASED BELIEFS

Johannes Spinnewijn

Journal of the European Economic Association, 2015, vol. 13, issue 1, 130-167

Abstract: This paper analyzes how biased beliefs about employment prospects affect the optimal design of unemployment insurance. Empirically, I find that the unemployed greatly overestimate how quickly they will find work. As a consequence, they would search too little for work, save too little for unemployment and deplete their savings too rapidly when unemployed. I analyze the use of the “sufficient-statistics” formula to characterize the optimal unemployment policy when beliefs are biased and revisit the desirability of providing liquidity to the unemployed. I also find that the optimal unemployment policy may involve increasing benefits during the unemployment spell.

Date: 2015
References: Add references at CitEc
Citations: View citations in EconPapers (130)

Downloads: (external link)
http://hdl.handle.net/10.1111/jeea.12099 (text/html)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Unemployed but optimistic: optimal insurance design with biased beliefs (2015)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:jeurec:v:13:y:2015:i:1:p:130-167

Access Statistics for this article

Journal of the European Economic Association is currently edited by Fabrizio Zilibotti, Dirk Bergemann, Nicola Gennaioli, Claudio Michelacci and Daniele Paserman

More articles in Journal of the European Economic Association from European Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().