Hiring as a Herd : Optimal Unemployment Insurance with Asymmetric Information

This paper characterizes optimal unemployment insurance (UI) in terms of estimable statistics in the presence of negative duration dependence for the unemployed, with endogenous callback rates generated by asymmetric information. I show how this characterization generalizes the standard Baily-Chetty framework. In addition, I construct an approximation for optimal UI as a function of the average elasticity of callback rates with respect to unemployment benefits. There is no estimate of this elasticity in the literature, but I illustrate the responsiveness of optimal UI to this elasticity