Incentive contracts and efficient unemployment benefits

Dominique Demougin () and Carsten Helm

No 191, Darmstadt Discussion Papers in Economics from Darmstadt University of Technology, Department of Law and Economics

Abstract: Several European countries have reformed their labor market institutions. Incentive effects of unemployment benefits have been an important aspect of these reforms. We analyze this issue in a principal-agent model, focusing on unemployment levels and labor productivity. In our model, a higher level of unemployment benefits improves the workers' position in wage bargaining, leading to stronger effort incentives and higher output. However, it also reduces incentives for labor market participation. Accordingly, there is a trade-off. We analyze how changes in the economic environment such as globalization and better educated workers affect this trade-off.

Keywords: Unemployment benefits; incentive contracts; Nash bargaining; moral hazard; globalisation (search for similar items in EconPapers)
JEL-codes: D82 E24 J41 J65 (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Incentive Contracts and Efficient Unemployment Benefits (2009)
Working Paper: Incentive Contracts and Efficient Unemployment Benefits (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:darddp:dar_35490

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