Social Insurance, Information Revelation, and Lack of Commitment

Mikhail Golosov and Luigi Iovino

Journal of Political Economy, 2021, vol. 129, issue 9, 2629 - 2665

Abstract: We study optimal provision of unemployment insurance in a model where agents privately observe arrival of job opportunities and government’s ability to commit is imperfect. Imperfect commitment implies that full information revelation is generally suboptimal. Social welfare is convex in the probability with which agents reveal their private information. In the optimum, each agent is provided with incentives to either fully reveal his private information or not reveal it at all. The optimal contract can be decentralized by a joint system of unemployment and disability benefits in a way that resembles how these systems are used in practice.

Date: 2021
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Related works:
Working Paper: Social Insurance, Information Revelation, and Lack of Commitment (2019)
Working Paper: Social Insurance, Information Revelation, and Lack of Commitment (2014)
Working Paper: Social Insurance, Information Revelation, and Lack of Commitment (2013)
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