Unemployment insurance with hidden savings

Matthew Mitchell and Yuzhe Zhang ()
Authors registered in the RePEc Author Service: Matthew Mitchell and Matthew D. Mitchell ()

Journal of Economic Theory, 2010, vol. 145, issue 6, 2078-2107

Abstract: This paper studies the design of unemployment insurance when neither the searching effort nor the savings of an unemployed agent can be monitored. If the principal could monitor the savings, the optimal policy would leave the agent savings-constrained. With a constant absolute risk-aversion (CARA) utility function, we obtain a closed form solution of the optimal contract. Under the optimal contract, the agent is neither saving nor borrowing constrained. Counter-intuitively, his consumption declines faster than implied by Hopenhayn and Nicolini (1997) [1]. The efficient allocation can be implemented by an increasing benefit during unemployment and a constant tax during employment.

Keywords: Hidden; savings; Hidden; wealth; Repeated; moral; hazard; Unemployment; insurance (search for similar items in EconPapers)
Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:145:y:2010:i:6:p:2078-2107

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