Incentive Contracts and Efficient Unemployment Benefits in a Globalized World

Research, Preprint OPEN
Carsten Helm ; Dominique Demougin (2012)
  • Publisher: University of Oldenburg, Department of Economics Oldenburg
  • Subject: Prinzipal-Agent-Theorie | Ökonomischer Anreiz | Unemployment benefits, incentive contracts, Nash bargaining, moral hazard, globalization | Arbeitslosenversicherung | J41 | E24 | Unemployment benefits | globalization | incentive contracts | Globalisierung | J65 | Moral Hazard | Nash bargaining | Asymmetrische Information | Nash-Gleichgewicht | Institutionelle Infrastruktur | Arbeitsmarktintegration | D82
    • jel: jel:J41 | jel:E24 | jel:D82 | jel:J65
      ddc: ddc:330

Several European countries have reformed their labor market institutions. Incentive effects of unemployment benefits have been an important aspect of these reforms. We analyse this issue in a principal-agent model, higher level of unemployment benefits improves the workers' position in wage bargaining, leading to stronger effort incentives and higher output. However, it also reduces incentives for labor market participation. Accordingly, there is a trade-off. We analyze how changes in the economic environment such as globalization and better educated workers affect this trade-off.
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