Adverse selection and moral hazard: Quantitative implications for unemployment insurance

David Fuller

Journal of Monetary Economics, 2014, vol. 62, issue C, 108-122

Abstract: A model of optimal unemployment insurance with adverse selection and moral hazard is constructed. The model generates both qualitative and quantitative implications for the optimal provision of unemployment insurance. Qualitatively, for some agents, incentives in the optimal contract imply consumption increases over the duration of non-employment. Calibrating the model to a stylized version of the U.S. economy quantitatively illustrates these theoretical predictions. The optimal contract achieves a welfare gain of 1.94% relative to the current U.S. system, an additional 0.87% of gains relative to a planner who ignores adverse selection and focuses only on moral hazard.

Keywords: Unemployment insurance; Non-participation; Adverse selection; Moral hazard; Dynamic contracts (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (7)

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Related works:
Working Paper: Adverse Selection and Moral Hazard: Quantitative Implications for Unemployment Insurance (2011)
Working Paper: Adverse Selection and Moral Hazard: Quanitative Implications for Unemployment Insurance (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:62:y:2014:i:c:p:108-122

DOI: 10.1016/j.jmoneco.2013.10.003

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