Unemployment risks and intra-household insurance

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To study the constrained efficient public insurance provision against unemployment risks, we build a directed search model with households where a spouse's ability to provide consumption insurance determines the risks job-seekers take on. The planner's transfers to the unemployed fall with the spouse's income because of concave preferences with limited complementarity between consumption and the spouse's labor. Due to the absence of such a transfers scheme in the laissez-faire equilibrium, too many too-low-wage jobs are created as jobless workers seek insurance in the labor market. Social welfare-maximizing policies with simple tax schemes exhibit unemployment benefits falling with spouse's income, and nearly fill up the welfare gap.

Original languageEnglish
Article number105477
Number of pages34
JournalJournal of economic theory
Publication statusPublished - 13 May 2022


  • Constrained efficient insurance
  • Directed search
  • Intra-household risk-sharing
  • Unemployment risks


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