Revising claims and resisting ultimatums in bargaining problems.

We propose a mechanism which implements a unique solution to the bargaining problem with two players in subgame-perfect equilibrium. Players start by making claims and accept a compromise only if they cannot gain by pursuing their claim in an ultimatum. The player offering the lowest resistance to his opponent’s claim can propose a compromise. The unique solution depends on the extent to which claims can be revised. If no revisions are allowed, compatible claims implement the Nash solution. If all revisions are allowed, maximal claims implement the Kalai-Smorodinsky solution.

Unemployed but optimistic: optimal insurance design with biased beliefs

This paper analyzes how biased beliefs about employment prospects affect the optimal design of unemployment insurance. Empirically, I find that the unemployed greatly overestimate how quickly they will find work. As a consequence, they would search too little for work, save too little for unemployment and deplete their savings too rapidly when unemployed. I analyze the use of the "sufficient-statistics" formula to characterize the optimal unemployment policy when beliefs are biased and revisit the desirability of providing liquidity to the unemployed. I also find that the optimal unemployment policy may involve increasing benefits during the unemployment spell

Essays on Optimal Insurance Design: Dissertation Summary

This dissertation consists of three chapters analyzing the optimal design of insurance contracts. I consider three relevant contexts that change the central trade-off between the provision of insurance and the provision of incentives. The first chapter analyzes the role of biased beliefs for the optimal design of static and dynamic insurance contracts. The second chapter analyzes the role of training for the design of unemployment insurance. The third chapter analyzes the role of heterogeneity in risk perceptions for the optimal design of screening contracts in a model with moral hazard and adverse selection

Heterogeneity, demand for insurance and adverse selection

Recent evidence underlines the importance of demand frictions distorting insurance choices. Heterogeneous frictions cause the willingness to pay for insurance to be biased upward (relative to value) for those purchasing insurance, but downward for those who remain uninsured. The paper integrates this finding with standard methods for evaluating welfare in insurance markets and demonstrates how welfare conclusions regarding adversely selected markets are affected. The demand frictions framework also makes qualitatively different predictions about the desir- ability of policies like insurance subsidies and mandates, commonly used to tackle adverse selection

The trade-off between insurance and incentives in differentiated unemployment policies

In this paper, I revisit the central trade-off between insurance and incentives in the design of unemployment insurance policies. The generosity of unemployment insurance benefits differs not only across countries, but also across workers within countries. After illustrating some important dimensions of heterogeneity in a cross-country analysis, I extend the standard Baily–Chetty formula to identify the key empirical moments and elasticities required to evaluate the differentiated unemployment policy within a country. I also review some prior work and aim to provide guidance for future work trying to inform the design of unemployment policies

Revising claims and resisting ultimatums in bargaining problems

We propose a simple mechanism which implements a unique solution to the bargaining problem with two players in subgame-perfect equilibrium. The mechanism incorporates two important features of negotiations; players can revise claims in an attempt to reach a compromise or pursue their claims in an ultimate take-it-or-leave-it offer. Players restrain their claims to avoid a weak bargaining position or their resistance to uncompromising behavior to acquire leadership. The Nash solution and the Kalai–Smorodinsky solution are implemented in the extreme cases when respectively no and all revisions are allowed

Does providing gig workers with unemployment insurance create a moral hazard?

Non-standard workers doing short-term, flexible jobs are a growing segment of the labour force, which poses difficult questions. Is it good policy to provide unemployment insurance to them? Do people engage in gig work by choice? And should they be rewarded for it? Jonas Kolsrud and Johannes Spinnewijn explore the issue and argue that many gig workers are likely to have few resources other than unemployment insurance when they become jobless

Capital income taxes with heterogeneous discount rates

July 14, 200

The value and limits of unemployment insurance

This paper reviews some recent findings regarding unemployment and unemployment insurance in particular, drawing on comprehensive administrative data from Sweden. Firstly, it explores the value of unemployment insurance, revealing that individuals value UI more than previously thought. Secondly, it examines the nature of unemployment, demonstrating that long-term unemployment is predictable and challenging preconceived notions on how unemployment can be a trap. Lastly, it explores the possibility of providing choice in unemployment insurance, finding limited adverse selection. Based on these pieces of evidence, we draw implications for the expansion of UI coverage for non-standard workers

Essays on optimal insurance design

Thesis (Ph. D.)--Massachusetts Institute of Technology, Dept. of Economics, 2009.Includes bibliographical references (p. 157-166).This dissertation consists of three chapters analyzing the optimal design of insurance contracts. I consider three relevant contexts that change the central trade-off between the provision of insurance and the provision of incentives. The first chapter analyzes the role of biased beliefs for the optimal design of static and dynamic insurance contracts. Biased risk perceptions change the perceived value of insurance and the perceived returns to avoiding these risks. I show empirically that unemployed workers overestimate how quickly they will find work, but underestimate the return to their search efforts. I analyze how these biases drive a wedge between social and private insurance, and between naive and optimal policy implementation. The second chapter analyzes the role of training for the design of unemployment insurance. A worker's human capital falls upon displacement and depreciates during unemployment. Training counters the decrease in human capital, but also changes the willingness of the unemployed to search. I characterize the optimal unemployment insurance contract and analyze the optimal timing of unemployment benefits and training programs during unemployment. The third chapter analyzes the role of heterogeneity in risk perceptions for the optimal design of screening contracts in a model with moral hazard and adverse selection. I show how optimists receive less insurance than pessimists and I contrast the distortions in insurance coverage that arise with competing and monopolistic insurers.(cont.) Heterogeneity in beliefs strengthens the case for government intervention in insurance markets and can explain the negative correlation between risk occurrence and insurance coverage found in empirical studies.by Johannes Spinnewijn.Ph.D