Unemployment Insurance and Personal Bankruptcy

FRB Richmond Economic Quarterly, Vol. 89, No. 2, Spring 2003, pp. 33-53

21 Pages Posted: 5 Dec 2012

See all articles by Kartik Athreya

Kartik Athreya

Federal Reserve Banks - Federal Reserve Bank of Richmond

Date Written: 2003

Abstract

As an implicit form of insurance, bankruptcy may augment, substitute for, or limit other forms of insurance. Conversely, the presence of other forms of insurance may enhance or limit the usefulness of bankruptcy. An investigation of the interaction between one of the largest social insurance schemes, the U.S. unemployment insurance system (UI), and the personal bankruptcy system reveals several findings. First, in the benchmark economy, introducing bankruptcy under even low UI replacement ratios lowers welfare. Second, reducing the UI replacement ratio lowers welfare slightly and increases bankruptcy rates. Third, bankruptcy lowers asset trade and makes the distribution of wealth more equal. Fourth, UI is more important than bankruptcy: if society must choose either UI or bankruptcy, it should choose UI. Last, bankruptcy's role in providing insurance is clearly dependent on the existing social safety net.

Suggested Citation

Athreya, Kartik, Unemployment Insurance and Personal Bankruptcy (2003). FRB Richmond Economic Quarterly, Vol. 89, No. 2, Spring 2003, pp. 33-53, Available at SSRN: https://ssrn.com/abstract=2184939

Kartik Athreya (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Richmond ( email )

P.O. Box 27622
Richmond, VA 23261
United States

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