Working Paper 546

Optimal Social Insurance, Incentives, and Transition

Patrick J. Kehoe | Stanford University, University College London, Federal Reserve Bank of Minneapolis
Andrew Atkeson | Consultant

Published March 1, 1995

Abstract
We study transition in a model in which the process of moving workers from matches in the state sector to new matches in the private sector takes time and involves uncertainty. When there are incentive problems in this rematching process, the optimal scheme may involve forced layoffs, involuntary unemployment, and a recession.


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