A Menu of Insurance Contracts for the Unemployed

54 Pages Posted: 7 Oct 2019

See all articles by Regis Barnichon

Regis Barnichon

Federal Reserve Bank of San Francisco

Yanos Zylberberg

University of Bristol

Date Written: August 2019


Unemployment insurance (UI) programs traditionally take the form of a single insurance contract offered to job seekers. In this work, we show that offering a menu of contracts can be welfare improving in the presence of adverse selection and moral hazard. When insurance contracts are composed of (i) a UI payment and (ii) a severance payment paid at the onset of unemployment, offering contracts with different ratios of UI benefits to severance payment is optimal under the equivalent of a single-crossing condition: job seekers in higher need of unemployment insurance should be less prone to moral hazard. In that setting, a menu allows the planner to attract job seekers with a high need for insurance in a contract with generous UI benefits, and to attract job seekers most prone to moral hazard in a separate contract with a large severance payment but little unemployment insurance. We propose a simple sufficient statistics approach to test the single-crossing condition in the data.

Keywords: Adverse Selection, moral hazard, Unemployment insurance

JEL Classification: D82, J65

Suggested Citation

Barnichon, Regis and Zylberberg, Yanos, A Menu of Insurance Contracts for the Unemployed (August 2019). CEPR Discussion Paper No. DP13959, Available at SSRN: https://ssrn.com/abstract=3464484

Regis Barnichon (Contact Author)

Federal Reserve Bank of San Francisco ( email )

101 Market Street
San Francisco, CA 94105
United States

Yanos Zylberberg

University of Bristol ( email )

University of Bristol,
Senate House, Tyndall Avenue
Bristol, BS8 ITH
United Kingdom

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
PlumX Metrics