Unemployment Insurance with Hidden Savings

Matthew Mitchell and Yuzhe Zhang ()
Authors registered in the RePEc Author Service: Matthew Mitchell and Matthew D. Mitchell ()

MPRA Paper from University Library of Munich, Germany

Abstract: This paper studies the design of unemployment insurance when neither the searching effort nor the savings of an unemployed agent can be monitored. If the principal could monitor the savings, the optimal policy would leave the agent savings-constrained. With a constant absolute risk-aversion (CARA) utility function, we obtain a closed form solution of the optimal contract. Under the optimal contract, the agent is neither saving nor borrowing constrained. Counter-intuitively, his consumption declines faster than implied by Hopenhayn and Nicolini [4]. The efficient allocation can be implemented by an increasing benefit during unemployment and a constant tax during employment.

Keywords: hidden savings; hidden wealth; repeated moral hazard; unemployment insurance. (search for similar items in EconPapers)
JEL-codes: D82 D86 J65 (search for similar items in EconPapers)
Date: 2010-03
New Economics Papers: this item is included in nep-cta, nep-dge, nep-ias and nep-lab
References: Add references at CitEc
Citations: View citations in EconPapers (13)

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Journal Article: Unemployment insurance with hidden savings (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:23214

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