English, Article edition: Optimal Unemployment Insurance: Transitional Dynamics vs. Steady State Gilles Joseph; Thomas Weitzenblum

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Physical Description
  • article
Language
  • English

Edition details

Title
  • Optimal Unemployment Insurance: Transitional Dynamics vs. Steady State
Author
  • Gilles Joseph
  • Thomas Weitzenblum
Physical Description
  • article
Notes
  • In this study, we ask whether the presence of precautionary savings substantially reduces the optimal replacement rate in an European economy type characterized by high unemployment benefits and moral hazard. We build a simple job search model calibrated on French data and, in line with previous studies, find that the optimality criterion based on comparisons of steady states leads to a low optimal ratio. Yet, this result ignores potential transitional costs due to the necessity for agents to increase their savings and reduce their consumption whenever the ratio is cut. We therefore build a dynamic model taking full account of the transition, and show that a reduction in benefits reduces welfare. Even though the long-run optimal replacement rate is lower than the current one, transitional costs dominate long-run gains. (Copyright: Elsevier)
  • equilibrium unemployment, job search, moral hazard, precautionary savings, unemployment insurance.
  • RePEc:red:issued:v:6:y:2003:i:4:p:869-884
Language
  • English
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