Moral Hazard and Optimal Unemployment Insurance in an Economy with Heterogeneous Skills

Stephane Pallage and Christian Zimmermann

No 54, Cahiers de recherche CREFE / CREFE Working Papers from CREFE, Université du Québec à Montréal

Abstract: In this paper, we show that in a dynamic general equilibrium economy, the presence of moral hazard need not induce large cuts in optimal unemployment insurance benefits. We find that it takes a quite large proportion of "shirkers" to bend the generosity of the optimal unemployment insurance program. This result stands in sharp contrast to the extant literature. Our key assumption is that agents are heterogeneous in skills and may differ in their wage as well as in their transition in and out of unemployment. Our results have important implications in the light of recent unemployment insurance reforms.

Dans cette étude, nous montrons que le risque moral joue un maigre rôle dans la détermination de l'assurance chômage optimale. Dans une économie d'équilibre général dynamique, nous trouvons que seule la présence d'un nombre très important d'abuseurs conduit à une perte significative de générosité dans les allocations d'assurance chômage. Ce résultat va à l'encontre de la littérature existante. Notre modèle s'en distingue uniquement par le fait que les agents diffèrent dans leurs habiletés, ce qui se traduit par des différences de salaires et de probabilités de chômage. Ces résultats peuvent avoir des conséquences importantes au vu des réformes récentes de l'assurance chômage.

Keywords: Unemployment Insurance; Moral Hazard; Redistribution; Dynamic General Equilibrium; Heterogeneous Agents; Voting (search for similar items in EconPapers)
JEL-codes: E24 J65 (search for similar items in EconPapers)
Pages: 16 pages
Date: 1997-10
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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