On existence of private unemployment insurance with advance information on future job losses

Arbeitspapier

We study the existence of a profitable unemployment insurance market in a dynamic economy with adverse selection rooting in information on future job losses. The new feature of the model is that the insurer and workers interact repeatedly. Repeated interactions make it possible to threaten workers with exclusion from future insurance benefits after a default on insurance premia. With exclusion, not only the insurance against the fundamental risk, but also against future bad news about job losses matters. In contrast to conventional wisdom, we find that private unemployment insurance in the US can be profitable for a relatively short exclusion length of one year. To stimulate the emergence of a private unemployment insurance market, policy makers can facilitate the creation of a registry that archives past defaults on insurance premia.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Tinbergen Institute Discussion Paper ; No. TI 2021-052/VI

Classification and Topics

• Classification: Wirtschaft ; Asymmetric and Private Information; Mechanism Design ; Economics of Contract: Theory ; Insurance; Insurance Companies; Actuarial Studies ; Unemployment Insurance; Severance Pay; Plant Closings
• Subject: Advance information ; subjective expectations ; adverse selection ; unemployment insurance ; repeated interactions ; dynamic contracts

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Denderski, Piotr ; Stoltenberg, Christian A.
• Event: Veröffentlichung
• (who): Tinbergen Institute
• (where): Amsterdam and Rotterdam
• (when): 2021

Further information

• Handle: http://hdl.handle.net/10419/237785
• Last update: 10.03.2025, 11:46 AM CET