Moral Hazard and Optimal Unemployment Insurance in an Economy with Heterogeneous Skills

CREFE Seminar Working Paper

Posted: 20 Jul 1998

See all articles by Christian Zimmermann

Christian Zimmermann

Federal Reserve Bank of Saint Louis; IZA Institute of Labor Economics

Stephane Pallage

University of Quebec at Montreal - Department of Economics; Centre interuniversitaire sur le risque, les politiques économiques et l'emploi (CIRPÉE)

Date Written: August 6, 1997

Abstract

In the presence of even small moral hazard, Hansen & Imrohoroglu (1992) show that the unemployment insurance should be much less generous than without moral hazard. This has important implications in the light of recent reforms. We question this result by adding a social component to the model: agents are heterogeneous in skills and may differ in their wage income as well as in their transition in and out of unemployment. Our dynamic general equilibrium model finds that much higher moral hazard is needed until unemployment insurance becomes significantly less generous.

JEL Classification: J65, D82

Suggested Citation

Zimmermann, Christian and Pallage, Stephane, Moral Hazard and Optimal Unemployment Insurance in an Economy with Heterogeneous Skills (August 6, 1997). CREFE Seminar Working Paper. Available at SSRN: https://ssrn.com/abstract=77677

Christian Zimmermann (Contact Author)

Federal Reserve Bank of Saint Louis ( email )

411 Locust St
Saint Louis, MO 63011
United States

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Stephane Pallage

University of Quebec at Montreal - Department of Economics ( email )

P.O. Box 8888, Downtown Station
Montreal, Quebec H3C 3P8
Canada
514-987-3000 ext. 8730 (Phone)
514-987-8494 (Fax)

Centre interuniversitaire sur le risque, les politiques économiques et l'emploi (CIRPÉE)

Pavillon De Sève
Ste-Foy, Quebec G1K 7P4
Canada

Here is the Coronavirus
related research on SSRN

Paper statistics

Abstract Views
631
PlumX Metrics