Time inconsistency as a rationale for public unemployment insurance |
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Authors: | Robin Boadway Nicolas Marceau |
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Affiliation: | (1) Department of Economics, Queen 's University, K7L 3N6 Kingston, Ontario, Canada;(2) Départment d'Économique, Université Laval, GIK7P4 Québec, Québec, Canada |
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Abstract: | A role for public unemployment insurance is developed based on the inability of the government to commit to a future rate of unemployment. This is illustrated using a model in which a minimum wage policy combined with unemployment insurance is welfare-improving. Unemployment insurance could be decentralized to the private sector if the government could commit to a minimum wage. However, if not, a government that acts in the interest of the workers will have an incentive to increase the minimum wage to exploit private insurers. In the absence of commitment, an equilibrium with private unemployment insurance will not exist. |
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Keywords: | time inconsistency unemployment insurance |
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