A Menu of Insurance Contracts for the Unemployed

Régis Barnichon and Yanos Zylberberg

No 13959, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Unemployment insurance (UI) programs traditionally take the form of a single insurance contract offered to job seekers. In this work, we show that offering a menu of contracts can be welfare improving in the presence of adverse selection and moral hazard. When insurance contracts are composed of (i) a UI payment and (ii) a severance payment paid at the onset of unemployment, offering contracts with different ratios of UI benefits to severance payment is optimal under the equivalent of a single-crossing condition: job seekers in higher need of unemployment insurance should be less prone to moral hazard. In that setting, a menu allows the planner to attract job seekers with a high need for insurance in a contract with generous UI benefits, and to attract job seekers most prone to moral hazard in a separate contract with a large severance payment but little unemployment insurance. We propose a simple sufficient statistics approach to test the single-crossing condition in the data.

Keywords: Unemployment insurance; Adverse selection; Moral hazard (search for similar items in EconPapers)
JEL-codes: D82 J65 (search for similar items in EconPapers)
Date: 2019-08
New Economics Papers: this item is included in nep-cta, nep-ias and nep-lab
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Journal Article: A Menu of Insurance Contracts for the Unemployed (2022)
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