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Unemployment Insurance under Moral Hazard and Limited Commitment: Public versus Private Provision
Author(s) -
THOMAS JONATHAN P.,
WORRALL TIM
Publication year - 2007
Publication title -
journal of public economic theory
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.809
H-Index - 32
eISSN - 1467-9779
pISSN - 1097-3923
DOI - 10.1111/j.1467-9779.2007.00302.x
Subject(s) - unemployment , moral hazard , economics , welfare , private insurance , crowding out , actuarial science , morale hazard , public health insurance , insurance policy , key person insurance , labour economics , microeconomics , auto insurance risk selection , monetary economics , macroeconomics , economic growth , health insurance , incentive , market economy , health care
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.