Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/80569
Authors: 
Koehne, Sebastian
Kuhn, Nikolas Moritz
Year of Publication: 
2013
Series/Report no.: 
IZA Discussion Paper 7488
Abstract: 
We study asset-tested unemployment insurance in an incomplete markets model with moral hazard during job search. Asset testing has two counteracting effects on welfare. On the one hand, it improves consumption insurance by introducing state contingent transfers to agents most in need. On the other hand, it worsens the moral hazard problem, since workers have a reduced incentive to save and fewer private resources are used for consumption smoothing during unemployment. Our results show that in a realistically calibrated model of the U.S. economy the two effects nearly offset each other - the optimal rate of asset-testing is approximately zero. This finding is robust to several alternative specifications of the model, including a case with heterogeneous time-discount factors. We conclude that the current U.S. unemployment insurance system is approximately optimal.
Subjects: 
unemployment insurance
asset-testing
incomplete markets
consumption and saving
JEL: 
E21
E24
J65
Document Type: 
Working Paper

Files in This Item:
File
Size
279.97 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.