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Faculty of Economics

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Rendahl, P.

Asset based unemployment insurance

International Economic Review

Vol. 53(3) pp. 743-770 (2012)

Abstract: 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.

JEL Codes: D14, J64, J65

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