Setty, Ofer (2011): Optimal Unemployment Insurance with Monitoring.
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Monitoring the job-search activities of unemployed workers is a common government intervention. I model monitoring in the optimal unemployment insurance framework of Hopenhayn and Nicolini (1997), where job-search effort is private information for the unemployed worker. In the model, monitoring provides costly imperfect information upon which the government conditions the unemployment benefits. In the optimal monitoring scheme, random monitoring, together with endogenous sanctions and rewards, create effective job-search incentives for the unemployed worker. For CRRA utility, the monitoring frequency increases and the spreads decrease with promised utility, if and only if the coefficient of risk aversion is greater than (1/2). Compared to optimal unemployment insurance, monitoring saves, at the balanced budget point, about eighty percent of the cost associated with moral hazard. The gain is achieved by a decrease of more than half in the standard deviation of consumption.
|Item Type:||MPRA Paper|
|Original Title:||Optimal Unemployment Insurance with Monitoring|
|Keywords:||Recursive Contracts; Unemployment Insurance; Job Search Monitoring|
|Subjects:||H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H21 - Efficiency; Optimal Taxation
J - Labor and Demographic Economics > J6 - Mobility, Unemployment, and Vacancies > J65 - Unemployment Insurance; Severance Pay; Plant Closings
J - Labor and Demographic Economics > J6 - Mobility, Unemployment, and Vacancies > J64 - Unemployment: Models, Duration, Incidence, and Job Search
D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information; Mechanism Design
|Depositing User:||Ofer Setty|
|Date Deposited:||30. Dec 2011 17:34|
|Last Modified:||16. Feb 2013 00:32|
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Optimal Unemployment Insurance with Monitoring. (deposited 26. Oct 2009 23:38)
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