Working Paper: NBER ID: w4381
Authors: Andrew Atkeson; Robert E. Lucas Jr.
Abstract: 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?
Keywords: unemployment insurance; efficiency; equality; resource allocation
JEL Codes: J65; D63
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| unemployment insurance scheme (J65) | distribution of individual entitlements (D63) |
| minimum entitlement constraint (D10) | consumption (E21) |
| interest rates (E43) | resource cost of achieving steady state distribution of utility (D39) |
| interest rates decrease (E43) | agents' consumption follows a downward drift (D12) |
| productive job opportunities (J68) | equilibrium state where not all agents are at minimum entitlement (D59) |