Optimal unemployment insurance: A survey

Unemployment insurance improves the allocation of risk bearing at the cost of reduced incentives for work. In the past two decades, a branch of the li terature has emerged that deals with the optimal design of unemployment ins urance. This literature has been influenced by ideas and methods from infor mation economics and by theories from labor economics. The result is a coll ection of models designed to highlight a variety of issues pertaining to th e provision of optimal unemployment insurance. This paper reviews these iss ues, summarizes the relevant literature, assesses its accomplishments, and points our problems that require further study.