OPTIMAL UNEMPLOYMENT-INSURANCE

We investigate the design of an optimal unemployment insurance program using an equilibrium search model calibrated using data from the reem ployment bonus experiments. There are three main conclusions. First, i nsurance considerations suggest that the potential duration of UI bene fits would be unlimited under an optimal program. Second, if the poten tial duration to benefits were unlimited, current replacement rates in the U.S. (about 0.5) would probably be about right. Third, the optima l replacement rate rises as the potential duration of benefits is incr easingly limited, reaching I when the potential duration of benefits i s limited to 32 weeks.