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ASSET‐BASED UNEMPLOYMENT INSURANCE *
Author(s) -
Rendahl Pontus
Publication year - 2012
Publication title -
international economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.658
H-Index - 86
eISSN - 1468-2354
pISSN - 0020-6598
DOI - 10.1111/j.1468-2354.2012.00699.x
Subject(s) - unemployment , asset (computer security) , constraint (computer aided design) , payment , consumption (sociology) , economics , position (finance) , government (linguistics) , key person insurance , actuarial science , insurance policy , labour economics , business , finance , macroeconomics , mechanical engineering , social science , linguistics , philosophy , computer security , sociology , computer science , engineering
This article studies a model of consumption, savings, and job search in which a borrowing constraint limits self‐insurance. The government administers the unemployment insurance program that may condition on an individual’s asset position, but not on her efforts of finding a job. To compensate for the impediments to self‐insurance, benefit payments should optimally be set higher at lower wealth levels and peak for borrowing‐constrained individuals with zero liquid funds. A quantitative exercise reveals that the U.S. unemployment insurance program is surprisingly close to optimal for the asset poor, but far too generous for wealthier individuals.