Stimulating Job Search Through the Unemployment Insurance System

This note extends the model of unemployment insurance reported by D. Zuckerman in 1985. The following extensions are incorporated into the model: The government's objective function is now formulated in a more economically appealing fashion; the search process is allowed to continue beyond the coverage period; the time value of money is explicitly incorporated; and the individual's search strategy is compared with the socially optimal policy. Using techniques and concepts from game theory, we investigate the socially and individually optimal strategies and derive an unemployment insurance strategy that best suits the government's objective.