The unemployment protection systems that exist in most Latin American economies are generally considered inadequate in terms of providing insurance to workers. They may also encourage stratified labor markets and impose barriers to the employee’s mobility and the firm's adjustment to changing...

We derive the shape of optimal unemployment insurance (UI) contracts when agents can exert search effort but face different search costs and have private information about their type. We derive a recursive solution of our dynamic adverse selection problem with repeated moral hazard. Conditions...