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Social Insurance, Information Revelation, and Lack of Commitment

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  • Iovino, Luigi
  • Golosov, Mikhail
Abstract
We consider optimal public provision of unemployment insurance when government's ability to commit is imperfect. Unemployed persons privately observe arrivals of job opportunities and choose probabilities of communicating this information to the government. Imperfect commitment implies that full information revelation is generally suboptimal. We define a notion of the social value of information and show that, due to the incentive constraints, it is a convex function of the information revealed. In the optimum each person is provided with an incentive to either reveal his private information fully or not reveal any of it, but the allocation of these incentives may be stochastic. In dynamic economies unemployed persons who enter a period with higher continuation utilities reveal their private information with lower probabilities. The optimal contract can be decentralized by a joint system of unemployment and disability benefits in a way that resembles how these systems are used in practice in developed countries.

Suggested Citation

  • Iovino, Luigi & Golosov, Mikhail, 2019. "Social Insurance, Information Revelation, and Lack of Commitment," CEPR Discussion Papers 14116, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:14116
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    3. Golosov, M. & Tsyvinski, A. & Werquin, N., 2016. "Recursive Contracts and Endogenously Incomplete Markets," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 725-841, Elsevier.
    4. Brendon, Charles & Ellison, Martin, 2018. "Time-consistently undominated policies," LSE Research Online Documents on Economics 87176, London School of Economics and Political Science, LSE Library.
    5. Josef Schroth, 2016. "Supervising Financial Regulators," Staff Working Papers 16-52, Bank of Canada.
    6. Josef Schroth, 2015. "Risk Sharing in the Presence of a Public Good," Staff Working Papers 15-27, Bank of Canada.

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    More about this item

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents

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