SOCIAL INSURANCE AND TRANSITION

We study the general equilibrium effects of social insurance on transi tion 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. As might be expected, adding social insurance to an economy without any improves welfare. Contrary to standard intuiti on, however, adding social insurance may slow transition. We show that this result depends crucially on general equilibrium interactions of interest rates and savings under alternative market structures.