We gratefully acknowledge programming assistance from Per Engström as well as useful comments from anonymous referees, David Grubb, Åsa Rosén and seminar participants at IZA, Bonn, Stockholm University, University of Copenhagen, University of Gothenburg and University of Cyprus. Fredriksson and Holmlund acknowledge the financial support from the Swedish Council for Working Life and Social Research. Boone acknowledges the financial support from NWO (grantnumbers 016.025.024 and 453.03.606).
Optimal Unemployment Insurance with Monitoring and Sanctions*
Version of Record online: 5 APR 2007
The Economic Journal
Volume 117, Issue 518, pages 399–421, March 2007
How to Cite
Boone, J., Fredriksson, P., Holmlund, B. and Van Ours, J. C. (2007), Optimal Unemployment Insurance with Monitoring and Sanctions. The Economic Journal, 117: 399–421. doi: 10.1111/j.1468-0297.2007.02023.x
- Issue online: 5 APR 2007
- Version of Record online: 5 APR 2007
- Submitted: 10 December 2002 Accepted: 3 May 2006
This article analyses the design of optimal unemployment insurance in a search equilibrium framework where search effort among the unemployed is not perfectly observable. We examine to what extent the optimal policy involves monitoring of search effort and benefit sanctions if observed search is deemed insufficient. We find that introducing monitoring and sanctions represents a welfare improvement for reasonable estimates of monitoring costs; this conclusion holds both relative to a system featuring indefinite payments of benefits and a system with a time limit on unemployment benefit receipt.