Endogenous Adverse Selection and Unemployment Insurance

Abstract

In this paper we consider how the presence of private information may explain the failure of the private sector to provide unemployment insurance. In particular, we show how the interaction of private information regarding employees' preferences for work with the unobservable level of effort exerted on the job may explain the absence of private unemployment insurance. We also reflect on the implications of our findings for the role of the public sector in providing unemployment insurance.