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Should UI Benefits Really Fall Over Time?

John Hassler () and Sevi Rodríguez Mora ()

No 622, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: The issue of whether unemployment benefits should increase or decrease over the unemployment spell is analyzed in a tractable model allowing moral hazard, adverse selection and hidden saving. Analytical results show that when the search productivity of unemployed is constant over the unemployment spell, benefits should typically increase or be constant. The only exception is when there is moral hazard and no hidden saving. In general, adverse selection problems tend to generate increasing benefits, moral hazard problems constant benefits and decreasing search productivity falling benefits.

Keywords: moral hazard; unemployment insurance; adverse selection (search for similar items in EconPapers)
JEL-codes: J65 J64 E24 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2002-11
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