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IZA
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Should UI Benefits Really Fall Over Time?
by
John Hassler, José V. Rodriguez Mora
(November 2002)
Abstract:
The issue of whether unemployment benefits should increase or decrease over the
unemployment spell is analyzed in a tractable model allowing moral hazard, adverse
selection and hidden saving. Analytical results show that when the search productivity of
unemployed is constant over the unemployment spell, benefits should typically increase or be
constant. The only exception is when there is moral hazard and no hidden saving. In general,
adverse selection problems tend to generate increasing benefits, moral hazard problems
constant benefits and decreasing search productivity falling benefits.
Text: See Discussion Paper No. 622 
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