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Title:Incentive contracts and efficient unemployment benefits PDF Logo
Authors:Demougin, Dominique M.
Helm, Carsten
Issue Date:2008
Series/Report no.:Darmstadt discussion papers in economics 191
Abstract:Several European countries have reformed their labor market institutions. Incentive effects of unemployment benefits have been an important aspect of these reforms. We analyze this issue in a principal-agent model, focusing on unemployment levels and labor productivity. In our model, a higher level of unemployment benefits improves the workers' position in wage bargaining, leading to stronger effort incentives and higher output. However, it also reduces incentives for labor market participation. Accordingly, there is a trade-off. We analyze how changes in the economic environment such as globalization and better educated workers affect this trade-off.
Subjects:Unemployment benefits
incentive contracts
Nash bargaining
moral hazard
globalisation
JEL:J65
D82
J41
E24
Document Type:Working Paper
Appears in Collections:Darmstadt Discussion Papers in Economics, Inst. f. VWL, TU Darmstadt

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