Optimal Unemployment Insurance with Endogenous Negative Duration Dependence

Brandon Lehr

Public Finance Review, 2017, vol. 45, issue 3, 395-422

Abstract: This article characterizes optimal unemployment insurance (UI) in an economy with endogenous negative duration dependence in hiring rates for the unemployed. The characterization generalizes the standard Baily–Chetty result and is independent of the particular mechanism generating endogenous hiring rates. I find that at the social optimum, UI equates the moral hazard cost with the sum of the insurance benefit and a new externality correction term. The sign of this externality correction term depends, in part, on the responsiveness of hiring rates to the UI benefit. I show how the effect of UI on hiring rates in turn depends on the particular assumptions about firm behavior, considering the cases of employer screening and human capital depreciation models.

Keywords: unemployment insurance; negative duration dependence; optimal policy; employer screening; human capital depreciation (search for similar items in EconPapers)
Date: 2017
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://pfr.sagepub.com/content/45/3/395.abstract (text/html)

Related works:
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:sae:pubfin:v:45:y:2017:i:3:p:395-422

Access Statistics for this article

More articles in Public Finance Review
Bibliographic data for series maintained by SAGE Publications ().