Regarding the above unemployment insurance system: a. (5 points) Intuitively explain why full insurance (consumption equalization...

Regarding the above unemployment insurance system:

a. (5 points) Intuitively explain why full insurance (consumption equalization between employed and unemployed states) is not socially optimal?

b. (5 points) Suppose there is also a group of agents who never lose their jobs and are also forced to be in the unemployment insurance system. Is there a redistributive aspect of such an unemployment insurance system? Explain clearly why or why not.

Expert Solution

Rahul Sunny answered 2 years ago

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