TY  - JOUR
AU  - Acemoglu,Daron
AU  - Shimer,Robert
TI  - Efficient Unemployment Insurance
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 6686
PY  - 1998
Y2  - August 1998
UR  - http://www.nber.org/papers/w6686
L1  - http://www.nber.org/papers/w6686.pdf
N1  - Author contact info:
Daron Acemoglu
Department of Economics
MIT, E52-380B
50 Memorial Drive
Cambridge, MA  02142-1347
Tel: 617/253-1927
Fax: 617/253-1330
E-Mail: daron@mit.edu

Robert Shimer
Department of Economics
University of Chicago
1126 East 59th Street
Chicago, IL 60637
Tel: 773/702-9015
E-Mail: shimer@uchicago.edu
AB  - This paper constructs a tractable general equilibrium model of search with risk-aversion.  An increase in risk-aversion reduces wages, unemployment, and investment.  Unemployment insurance (UI) has the reverse effect due to market generated moral hazard: insured workers seek high wage jobs with high unemployment risk. An economy with risk-neutral workers achieves maximal output without any UI.  In contrast, in an economy with risk-averse workers, a positive level of UI maximizes output.  Therefore, moderate UI not only improves risk-sharing, but also increases output.
ER  -