TY  - JOUR
AU  - Pavoni,Nicola
AU  - Setty,Ofer
AU  - Violante,Giovanni L.
TI  - Search and Work in Optimal Welfare Programs
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 18666
PY  - 2013
Y2  - January 2013
UR  - http://www.nber.org/papers/w18666
L1  - http://www.nber.org/papers/w18666.pdf
N1  - Author contact info:
Nicola Pavoni
Bocconi University
E-Mail: pavoni.nicola@gmail.com

Ofer Setty
Tel Aviv University
P.O. Box 39040
Tel Aviv 6997801
Israel
E-Mail: ofer.setty@gmail.com

Giovanni L. Violante
Department of Economics
New York University
19 W. 4th Street
New York, NY 10012-1119
Tel: 212/992-9771
Fax: 212/995-3932
E-Mail: glv2@nyu.edu
AB  - Some existing welfare programs (“work-first”) require participants to work in exchange for benefits. Others (“job search-first”) emphasize private job-search and provide assistance in finding and retaining a durable employment. This paper studies the optimal design of welfare programs when (i) the principal/government is unable to observe the agent’s effort, but can assist the agent’s job search and can mandate the agent to work, and (ii) agents’ skills depreciate during unemployment. In the optimal welfare program, assisted search is implemented between an initial spell of private search (unemployment insurance) and a final spell of pure income support where search effort is not elicited. To be effective, job-search assistance requires large reemployment subsidies. The optimal program features compulsory work activities for low levels of program’s generosity (i.e., its promised utility or available budget). The threat of mandatory work acts like a punishment that facilitates the provision of search incentives without compromising consumption smoothing too much. 
ER  -