Working Paper 546

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Optimal Social Insurance, Incentives, and Transition

Andrew Atkeson - Consultant
Patrick J. Kehoe - Consultant

Published March 1, 1995

We study transition 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. When there are incentive problems in this rematching process, the optimal scheme may involve forced layoffs, involuntary unemployment, and a recession.

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