Efficient Unemployment Insurance

Daron Acemoglu and Robert Shimer

No 6686, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper constructs a tractable general equilibrium model of search with risk-aversion. An increase in risk-aversion reduces wages, unemployment, and investment. Unemployment insurance (UI) has the reverse effect due to market generated moral hazard: insured workers seek high wage jobs with high unemployment risk. An economy with risk-neutral workers achieves maximal output without any UI. In contrast, in an economy with risk-averse workers, a positive level of UI maximizes output. Therefore, moderate UI not only improves risk-sharing, but also increases output.

JEL-codes: D83 J64 (search for similar items in EconPapers)
Date: 1998-08
New Economics Papers: this item is included in nep-cdm, nep-ltv and nep-pub
Note: LS PE
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Citations: View citations in EconPapers (18)

Published as Journal of Political Economy, Vol. 107, no. 5 (1999): 893-928.

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Journal Article: Efficient Unemployment Insurance (1999)
Working Paper: Efficient Unemployment Insurance (1997)
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