EconPapers    
Economics at your fingertips  
 

Optimal unemployment insurance: Consumption versus expenditure

Rodolfo Campos and Iliana Reggio

Labour Economics, 2016, vol. 38, issue C, 81-89

Abstract: We study the optimal provision of unemployment insurance (UI) in a framework that distinguishes between consumption and expenditure. We derive a “sufficient statistics” formula for optimal UI that is expressed in terms of observable variables and can therefore be used in applied work. Recent research has shown that unemployed households pay less per unit of consumption than employed households. This finding has two counteracting effects on the optimal level of UI. On the one hand, consumption smoothing benefits identified from expenditure data overestimate the true marginal benefits of UI. On the other hand, UI benefits become more valuable because they buy more consumption when unemployed. In an optimal design, which effect dominates depends on the curvature of the utility function. We show that for relative risk aversion larger than one the first effect dominates, leading to lower levels of optimal UI.

Keywords: Consumption; Expenditure; Consumption-smoothing; Social insurance; Unemployment insurance; Sufficient statistics (search for similar items in EconPapers)
JEL-codes: D11 J64 J65 J68 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0927537115001232
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Optimal Unemployment Insurance: Consumption versus Expenditure (2015) Downloads
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:eee:labeco:v:38:y:2016:i:c:p:81-89

DOI: 10.1016/j.labeco.2015.11.004

Access Statistics for this article

Labour Economics is currently edited by A. Ichino

More articles in Labour Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().

 
Page updated 2022-12-06
Handle: RePEc:eee:labeco:v:38:y:2016:i:c:p:81-89