Efficient unemployment insurance and the cost of borrowing

Andreas Pollak

Economics Letters, 2012, vol. 116, issue 2, 136-138

Abstract: This paper presents a simple formula relating the efficiency of the level of unemployment benefits to the cost of saving in an infinite-horizon economy in which households can borrow up to their natural borrowing limit. I extend Baily’s (1978) result showing that the benefits of unemployment insurance can be directly related to a measure of households’ impatience. This is possible because in the type of heterogeneous agent models under consideration, buffer-stock savings, and thus the expected consumption drop during unemployment, are determined by the prevailing interest rate.

Keywords: Unemployment insurance; Welfare; Heterogeneous agents (search for similar items in EconPapers)
JEL-codes: E2 J6 (search for similar items in EconPapers)
Date: 2012
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:116:y:2012:i:2:p:136-138

DOI: 10.1016/j.econlet.2012.02.001

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