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Unemployment insurance design: inducing moving and retraining

Hassler, John and Rodríguez Mora, José Vicente (2007) Unemployment insurance design: inducing moving and retraining , London, UK Centre for Economic Policy Research 49pp. (Discussion Papers in Economics and Econometrics, 702).

Record type: Monograph (Discussion Paper)

Abstract

Evidence suggests that unemployed individuals can sometimes affect their job prospects by undertaking a costly action like deciding to move or retrain. Realistically, such an opportunity only arises for some individuals and the identity of those may be unobservable ex-ante. The problem of characterizing constrained optimal unemployment insurance in this case has been neglected in previous literature. We construct a model of optimal unemployment insurance where multiple incentive constraints are easily handled. The model is used to analyze the case when an incentive constraint involving moving costs must be respected in addition to the standard constraint involving costly unobservable job-search. In particular, we derive closed-form solutions showing that when the moving/retraining incentive constraint binds, unemployment benefits should increase over the unemployment spell, with an initial period with low benefits and an increase after this period has expired

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More information

Published date: 29 June 2007
Keywords: unemployment benefits, search, moral hazard, adverse selection

Identifiers

Local EPrints ID: 47486
URI: http://eprints.soton.ac.uk/id/eprint/47486
ISSN: 0265-8003
PURE UUID: 14cbdc45-29cd-4334-adf1-1a0be677559a

Catalogue record

Date deposited: 01 Aug 2007
Last modified: 17 Jul 2017 15:04

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Contributors

Author: John Hassler
Author: José Vicente Rodríguez Mora

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