Unemployment risks and intra-household insurance
Journal of Economic Theory, 2022, vol. 203, issue C
To study the constrained efficient public insurance provision against unemployment risks, we build a directed search model with households where a spouse's ability to provide consumption insurance determines the risks job-seekers take on. The planner's transfers to the unemployed fall with the spouse's income because of concave preferences with limited complementarity between consumption and the spouse's labor. Due to the absence of such a transfers scheme in the laissez-faire equilibrium, too many too-low-wage jobs are created as jobless workers seek insurance in the labor market. Social welfare-maximizing policies with simple tax schemes exhibit unemployment benefits falling with spouse's income, and nearly fill up the welfare gap.
Keywords: Unemployment risks; Intra-household risk-sharing; Directed search; Constrained efficient insurance (search for similar items in EconPapers)
JEL-codes: J08 J22 J64 J65 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:203:y:2022:i:c:s0022053122000679
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