Optimal Unemployment Insurance with Hidden Search E¤ort and Hidden Savings
نویسنده
چکیده
This paper considers optimal unemployment insurance (UI) with unobserved search e¤ort and savings. Assuming linear search costs, it develops new variational arguments which identify a solution to the necessary conditions for optimality. The structure of the optimal UI program has unusual, yet highly intuitive, properties. A numerical example nds the optimal policy is well approximated by a lump sum severance payment, constant unemployment bene t payments while unemployed and an interest free loan. The lump sum layo¤ payment compensates the worker against his/her drop in permanent income though being laid-o¤, while the loan targets the assumed liquidity constraint that unemployed workers cannot borrow against future earnings. Keywords: Unemployment Insurance, Hidden Search E¤ort, Hidden Savings, Severance payments. JEL Classi cation: J3, J6. Address for correspondence: Melvyn Coles, University of Essex, Colchester CO4 3SQ. England. Email: [email protected]
منابع مشابه
Optimal Unemployment Insurance with Hidden Search Effort and Endogenous Savings∗
After first reviewing recent results on optimal unemployment insurance (UI) with unobserved search effort and hidden savings, this paper identifies that lump sum layoff payments play an important role. Simulations find that coordinating constant UI paid to the unemployed, with a severance payment that fully compensates for the drop in permanent income by being laid-off yields payoffs which are ...
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