Adverse Selection and Moral Hazard: Quantitative Implications for Unemployment Insurance

David Fuller

No 12004, Working Papers from Concordia University, Department of Economics

Abstract: I construct a dynamic contracting model of optimal unemployment insurance with adverse selection and moral hazard that captures the transition from unemployment to non-participation observed in the data, which the standard moral hazard model fails to capture. My 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. Quantitatively, I compare the current U.S. system to the optimal one, and find large cost savings to adopting the optimal contract. The optimal contract achieves an additional 46% of cost savings relative to a planner who ignores adverse selection and focuses only on moral hazard. I also find the current transition from unemployment to non-participation to be efficient, and when compared to the current U.S. system, the optimal contract implies agents experiencing a long spell of non-participation have consumption increasing over the spell.

Keywords: unemployment insurance; non-participation; adverse selection; moral hazard; dynamic contracts (search for similar items in EconPapers)
JEL-codes: C61 D82 E61 J64 J65 (search for similar items in EconPapers)
Pages: 52 pages
Date: 2010-08, Revised 2011-09
References: View references in EconPapers View complete reference list from CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
Journal Article: Adverse selection and moral hazard: Quantitative implications for unemployment insurance (2014)
Working Paper: Adverse Selection and Moral Hazard: Quanitative Implications for Unemployment Insurance (2008)
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:crd:wpaper:12004

Access Statistics for this paper

More papers in Working Papers from Concordia University, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Economics Department ().