NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Effciency and Equality in a Simple Model of Unemployment Insurance

Andrew Atkeson, Robert E. Lucas, Jr.

NBER Working Paper No. 4381
Issued in June 1993
NBER Program(s):   EFG

This paper describes the efficient allocation of consumption and work effort in an economy in which workers face idiosyncratic employment risk and considerations of moral hazard prevent full insurance. We impose a lower bound on the expected discounted utility that can be assigned to any agent from any date onward, and show, with this feature added, that the efficient unemployment insurance scheme induces an invariant cross sectional distribution of individual entitlements to utility. The paper thus provides a simple prototype model suited to the study of the normative question: what is the tradeoff between equality and efficiency in resource allocation?

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Document Object Identifier (DOI): 10.3386/w4381

Published: Journal of Economic Theory, Vol. 66, no. 1 (June 1995): 64-88.

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