nep-ias New Economics Papers
on Insurance Economics
Issue of 2005‒04‒03
two papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. A (New) Country Insurance Facility By Tito Cordella y Eduardo Levy Yeyati
  2. An Adverse Selection Model of Optimal Unemployment Insurance By Marcus Hagedorn; Ashok Kaul; Tim Mennel

  1. By: Tito Cordella y Eduardo Levy Yeyati
    Abstract: To cope with the self-fulfilling liquidity runs that triggered many recent financial crises, we propose the creation of a country insurance facility. The facility, which we envisage as complementary to the existing multilateral lending facilities, would provide eligible countries with automatic access to a credit line at a predetermined interest rate. Eligibility criteria should be easily verifiable, focus on debt sustainability, and take into account the currency and maturity composition of the debt. Other critical design issues considered here include the size of the facility, its duration and charges, and the exit costs for a country that loses eligibility.
    Date: 2005
  2. By: Marcus Hagedorn; Ashok Kaul; Tim Mennel
    Abstract: We ask whether offering a menu of unemployment insurance contracts is welfare improving in a heterogeneous population. We adopt a repeated moral-hazard framework as in Shavell/Weiss (1979) supplemented by unobserved heterogeneity about agents’ job opportunities. Our main theoretical contribution is an analytical characterization of the sets of jointly feasible entitlements that renders an efficient computation of these sets feasible. Our main economic result is that optimal contracts for ”bad” searchers tend to be upward-sloping due to an adverse-selection effect. This is in contrast to the well-known optimal decreasing time-profile of benefits in pure moral hazard environments that continue to be optimal for ”good” searchers in our model.
    Keywords: Unemployment Insurance, Recursive Contracts, Adverse Selection, Repeated Moral Hazard
    JEL: J65 J64 D82 C61 E61

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