IDEAS home Printed from https://ideas.repec.org/p/red/sed005/158.html
   My bibliography  Save this paper

Unemployment Insurance under Moral Hazard and Limited Commitment:Public versus Private Provision

Author

Listed:
  • Tim Worall
  • Jonathan P Thomas

Abstract

This paper analyzes a model of private unemployment insurance under limited commitment and a model of public unemployment insurance subject to moral hazard in an economy with a continuum of agents and an infinite time horizon. The dynamic and steady‐state properties of the optimum private unemployment insurance scheme are established. The interaction between public and private unemployment insurance schemes is examined. Examples are constructed to show that for some parameter values increased public insurance can reduce welfare by crowding out private insurance more than one‐to‐one and that for other parameter values a mix of both public and private insurance can be welfare maximizing.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Tim Worall & Jonathan P Thomas, 2005. "Unemployment Insurance under Moral Hazard and Limited Commitment:Public versus Private Provision," 2005 Meeting Papers 158, Society for Economic Dynamics.
    • Handle: RePEc:red:sed005:158
    as

    Download full text from publisher

    File URL: http://www.keele.ac.uk/depts/ec/t_worrall/social.pdf
    File Function: main text
    Download Restriction: no
    File URL: https://www.red-files-public.s3.amazonaws.com/meetpapers/2005/paper_158.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Dirk Krueger & Fabrizio Perri, 1999. "Risk Sharing: Private Insurance Markets or Redistributive Taxes?," Working Papers 99-04, New York University, Leonard N. Stern School of Business, Department of Economics.
    2. Ethan Ligon & Jonathan P. Thomas & Tim Worrall, 2000. "Mutual Insurance, Individual Savings and Limited Commitment," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 3(2), pages 216-246, April.
    3. YiLi Chien & Hanno Lustig, 2010. "The Market Price of Aggregate Risk and the Wealth Distribution," The Review of Financial Studies, Society for Financial Studies, vol. 23(4), pages 1596-1650, April.
    4. Rafael Di Tella & Robert MacCulloch, 2002. "Informal Family Insurance And The Design Of The Welfare State," Economic Journal, Royal Economic Society, vol. 112(481), pages 481-503, July.
    5. Arnott, Richard & Stiglitz, Joseph E, 1991. "Moral Hazard and Nonmarket Institutions: Dysfunctional Crowding Out or Peer Monitoring?," American Economic Review, American Economic Association, vol. 81(1), pages 179-190, March.
    6. Schoeni, R.F. & Blank, R.M., 2000. "What Has Welfare Reform Accomplished? Impacts on Welfare Participation, Employment, Income, Poverty, and Family Structure," Papers 00-02, RAND - Labor and Population Program.
    7. Dan Anderberg & Fredrik Andersson, 2000. "Social Insurance with Risk‐Reducing Investments," Economica, London School of Economics and Political Science, vol. 67(265), pages 37-56, February.
    8. Whinston, Michael D., 1983. "Moral hazard, adverse selection, and the optimal provision of social insurance," Journal of Public Economics, Elsevier, vol. 22(1), pages 49-71, October.
    9. Jonathan Thomas & Tim Worrall, 1988. "Self-Enforcing Wage Contracts," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 55(4), pages 541-554.
    10. Diamond, P. A. & Mirrlees, J. A., 1978. "A model of social insurance with variable retirement," Journal of Public Economics, Elsevier, vol. 10(3), pages 295-336, December.
    11. Coate, Stephen & Ravallion, Martin, 1993. "Reciprocity without commitment : Characterization and performance of informal insurance arrangements," Journal of Development Economics, Elsevier, vol. 40(1), pages 1-24, February.
    12. Schoeni, R.F. & Blank, R.M., 2000. "What Has Welfare Reform Accomplished? Impacts on Welfare Participation, Employment, Income, Poverty, and Family Structure," Papers 00-02, RAND - Labor and Population Program.
    13. Attanasio, Orazio & Rios-Rull, Jose-Victor, 2000. "Consumption smoothing in island economies: Can public insurance reduce welfare?," European Economic Review, Elsevier, vol. 44(7), pages 1225-1258, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Zhang, Yuzhe, 2013. "Characterization of a risk sharing contract with one-sided commitment," Journal of Economic Dynamics and Control, Elsevier, vol. 37(4), pages 794-809.
    2. Krueger, Dirk & Perri, Fabrizio, 2011. "Public versus private risk sharing," Journal of Economic Theory, Elsevier, vol. 146(3), pages 920-956, May.
    3. Lancia, Francesco & Russo, Alessia & Worrall, Tim S, 2020. "Optimal Sustainable Intergenerational Insurance," CEPR Discussion Papers 15540, C.E.P.R. Discussion Papers.
    4. Mazur, Karol, 2023. "Sharing risk to avoid tragedy: Informal insurance and irrigation in village economies," Journal of Development Economics, Elsevier, vol. 161(C).
    5. Tobias Broer, 2013. "The Wrong Shape of Insurance? What Cross-Sectional Distributions Tell Us about Models of Consumption Smoothing," American Economic Journal: Macroeconomics, American Economic Association, vol. 5(4), pages 107-140, October.
    6. Lin, Wanchuan & Meng, Juanjuan & Weng, Xi, 2020. "Formal insurance and informal risk sharing dynamics," Journal of Economic Behavior & Organization, Elsevier, vol. 180(C), pages 837-863.
    7. Lee, Hangsuck & Ryu, Doojin & Son, Jihoon, 2022. "Insurance-adjusted valuation, decision making, and capital return," International Review of Financial Analysis, Elsevier, vol. 84(C).
    8. Oikonomou Rigas, 2018. "Unemployment insurance with limited commitment wage contracts and savings," The B.E. Journal of Macroeconomics, De Gruyter, vol. 18(1), pages 1-21, January.
    9. Broer, Tobias, 2014. "Domestic or global imbalances? Rising income risk and the fall in the US current account," Journal of Monetary Economics, Elsevier, vol. 64(C), pages 47-67.
    10. Dirk Krueger, 2006. "Public Insurance against Idiosyncratic and Aggregate Risk: The Case of Social Security and Progressive Income Taxation," CESifo Economic Studies, CESifo Group, vol. 52(4), pages 587-620, December.
    11. Broer, Tobias, 2011. "Crowding out and crowding in: When does redistribution improve risk-sharing in limited commitment economies?," Journal of Economic Theory, Elsevier, vol. 146(3), pages 957-975, May.
    12. Dirk Krueger & Fulin Li & Harald Uhlig, 2024. "Neoclassical Growth Transition Dynamics with One-Sided Commitment," PIER Working Paper Archive 24-020, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
    13. Krzysztof Szczygielski, 2021. "Public provisions of professional services," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 23(2), pages 345-362, April.
    14. Picard, Pierre M. & Worrall, Tim, 2020. "Currency areas and voluntary transfers," Journal of International Economics, Elsevier, vol. 127(C).
    15. Lin, Wanchuan & Liu, Yiming & Meng, Juanjuan, 2014. "The crowding-out effect of formal insurance on informal risk sharing: An experimental study," Games and Economic Behavior, Elsevier, vol. 86(C), pages 184-211.
    16. Tim Worrall & Alessia Russo & Francesco Lancia, 2017. "Sustainable Intergenerational Insurance," 2017 Meeting Papers 319, Society for Economic Dynamics.
    17. Karol Mazur, 2020. "Sharing Risk to Avoid Tragedy: Informal Insurance and Irrigation in Village Economies," CSAE Working Paper Series 2020-19, Centre for the Study of African Economies, University of Oxford.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Jonathan P Thomas & Tim Worrall, 2002. "Unemployment Insurance under Moral Hazard and Limited Commitment: Public vs Private Provision," Keele Economics Research Papers KERP 2002/20, Centre for Economic Research, Keele University.
    2. Rafael Di Tella & Robert MacCulloch, 2002. "Informal Family Insurance And The Design Of The Welfare State," Economic Journal, Royal Economic Society, vol. 112(481), pages 481-503, July.
    3. Dubois, Pierre, 2002. "Consommation, partage de risque et assurance informelle : développements théoriques et tests empiriques récents," L'Actualité Economique, Société Canadienne de Science Economique, vol. 78(1), pages 115-149, Mars.
    4. Pierre Dubois & Bruno Jullien & Thierry Magnac, 2008. "Formal and Informal Risk Sharing in LDCs: Theory and Empirical Evidence," Econometrica, Econometric Society, vol. 76(4), pages 679-725, July.
    5. Andrew D. Foster & Mark R. Rosenzweig, 2001. "Imperfect Commitment, Altruism, And The Family: Evidence From Transfer Behavior In Low-Income Rural Areas," The Review of Economics and Statistics, MIT Press, vol. 83(3), pages 389-407, August.
    6. Mikhail Golosov & Aleh Tsyvinski, 2007. "Optimal Taxation with Endogenous Insurance Markets," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 122(2), pages 487-534.
    7. Anderberg, Dan & Morsink, Karlijn, 2020. "The introduction of formal insurance and its effect on redistribution," Journal of Economic Behavior & Organization, Elsevier, vol. 179(C), pages 22-45.
    8. Lin, Wanchuan & Meng, Juanjuan & Weng, Xi, 2020. "Formal insurance and informal risk sharing dynamics," Journal of Economic Behavior & Organization, Elsevier, vol. 180(C), pages 837-863.
    9. Krueger, Dirk & Perri, Fabrizio, 2011. "Public versus private risk sharing," Journal of Economic Theory, Elsevier, vol. 146(3), pages 920-956, May.
    10. Krueger, Dirk & Uhlig, Harald, 2006. "Competitive risk sharing contracts with one-sided commitment," Journal of Monetary Economics, Elsevier, vol. 53(7), pages 1661-1691, October.
    11. Besley, Timothy, 1995. "Savings, credit and insurance," Handbook of Development Economics, in: Hollis Chenery & T.N. Srinivasan (ed.), Handbook of Development Economics, edition 1, volume 3, chapter 36, pages 2123-2207, Elsevier.
    12. Sarolta Laczo, 2010. "Estimating Dynamic Contracts: Risk Sharing in Village Economies," 2010 Meeting Papers 687, Society for Economic Dynamics.
    13. Oikonomou, Rigas, 2013. "Optimal Unemployment Insurance with Private Insurance," MPRA Paper 55726, University Library of Munich, Germany.
    14. Golosov, M. & Tsyvinski, A. & Werquin, N., 2016. "Recursive Contracts and Endogenously Incomplete Markets," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 725-841, Elsevier.
    15. Wahhaj, Zaki, 2010. "Social norms and individual savings in the context of informal insurance," Journal of Economic Behavior & Organization, Elsevier, vol. 76(3), pages 511-530, December.
    16. Dan Anderberg & Karlijn Marsink, 2019. "The introduction of formal insurance and its effect on redistribution," CESifo Working Paper Series 7596, CESifo.
    17. Attanasio, Orazio & Rios-Rull, Jose-Victor, 2000. "Consumption smoothing in island economies: Can public insurance reduce welfare?," European Economic Review, Elsevier, vol. 44(7), pages 1225-1258, June.
    18. Lin, Wanchuan & Liu, Yiming & Meng, Juanjuan, 2014. "The crowding-out effect of formal insurance on informal risk sharing: An experimental study," Games and Economic Behavior, Elsevier, vol. 86(C), pages 184-211.
    19. Dercon, Stefan & Bold, Tessa, 2014. "Insurance companies of the poor," CEPR Discussion Papers 10278, C.E.P.R. Discussion Papers.
    20. Melanie Morten, 2016. "Temporary Migration and Endogenous Risk Sharing in Village India," NBER Working Papers 22159, National Bureau of Economic Research, Inc.

    More about this item

    Keywords

    Social Insurance; Moral Hazard; Limited Commitment; Unemployment Insurance; Crowding Out.;
    All these keywords.

    JEL classification:

    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:red:sed005:158. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Christian Zimmermann (email available below). General contact details of provider: https://edirc.repec.org/data/sedddea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.