Moral hazard, optimal unemployment insurance, and aggregate dynamics

Marcelo Veracierto

In this paper, I explore how optimal aggregate dynamics can be shaped by the presence of moral hazard in unemployment insurance. I also analyze the optimal provision of unemployment insurance and the implications for the amount of cross-sectional heterogeneity. The economy that I consider embeds the Hopenhayn-Nicolini unemployment insurance model into a real business cycle model with search frictions. In a calibrated version I find that the presence of private information has large effects on optimal aggregate steady-state dynamics but not on aggregate fluctuations. In addition, I find that optimal consumption replacement ratios are approximately independent of the business cycle.

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Year of publication:	[2022]
Authors:	Veracierto, Marcelo
Publisher:	[Chicago, Illinois] : Federal Reserve Bank of Chicago
Subject:	Private information \| Mechanism Design \| Business Cycles \| Moral hazard \| Unemployment Insurance \| Moral Hazard \| Arbeitslosenversicherung \| Unemployment insurance \| Theorie \| Theory \| Asymmetrische Information \| Asymmetric information \| Konjunktur \| Business cycle \| Prinzipal-Agent-Theorie \| Agency theory