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The Role Of Unemployment Insurance In An Economy With Liquidity Constraints And Moral Hazard

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  • HANSEN, G.D.
  • IMROHOROGLU, A.
Abstract
The potential welfare benefits of unemployment insurance, along with the optimal replacement ratio, are studied using a quantitative dynamic general equilibrium model. To provide a role for unemployment insurance, agents in the authors' economy face exogenous idiosyncratic employment shocks and are unable to borrow or insure themselves through private markets. In the absence of moral hazard, replacement ratios as high as 0.65 are optimal and the welfare benefits of unemployment insurance are quite large. However, if there is moral hazard and the replacement ratio is not set optimally, the economy can be much worse-off than it would be without unemployment insurance. Copyright 1992 by University of Chicago Press.
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Suggested Citation

  • Hansen, G.D. & Imrohoroglu, A., 1990. "The Role Of Unemployment Insurance In An Economy With Liquidity Constraints And Moral Hazard," Papers 21, California Los Angeles - Applied Econometrics.
  • Handle: RePEc:fth:callaa:21
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    References listed on IDEAS

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    1. David Easley & Nicholas M. Kiefer & Uri Possen, 1985. "An Equilibrium Analysis of Optimal Unemployment Insurance and Taxation," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 100(Supplemen), pages 989-1010.
    2. Mehra, Rajnish & Prescott, Edward C., 1985. "The equity premium: A puzzle," Journal of Monetary Economics, Elsevier, vol. 15(2), pages 145-161, March.
    3. repec:fth:prinin:243 is not listed on IDEAS
    4. Hansen, Gary D., 1985. "Indivisible labor and the business cycle," Journal of Monetary Economics, Elsevier, vol. 16(3), pages 309-327, November.
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    8. Rebecca M. Blank & David E. Card, 1991. "Recent Trends in Insured and Uninsured Unemployment: Is There an Explanation?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(4), pages 1157-1189.
    9. Rogerson, Richard, 1988. "Indivisible labor, lotteries and equilibrium," Journal of Monetary Economics, Elsevier, vol. 21(1), pages 3-16, January.
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    12. Imrohoruglu, Ayse, 1989. "Cost of Business Cycles with Indivisibilities and Liquidity Constraints," Journal of Political Economy, University of Chicago Press, vol. 97(6), pages 1364-1383, December.
    13. Flemming, J. S., 1978. "Aspects of optimal unemployment insurance : Search, leisure, savings and capital market imperfections," Journal of Public Economics, Elsevier, vol. 10(3), pages 403-425, December.
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