Unemployment Insurance Fraud and Optimal Monitoring Academic Article uri icon

abstract

  • An important incentive problem for the design of unemployment insurance is the fraudulent collection of unemployment benefits by workers who are gainfully employed. We show how to efficiently use a combination of tax/subsidy and monitoring to prevent such fraud. The optimal policy monitors the unemployed at fixed intervals. Employment tax is nonmonotonic: it increases between verifications but decreases after a verification. Unemployment benefits are relatively flat between verifications but decrease sharply after a verification. Our quantitative analysis suggests that the optimal monitoring cost is 60 percent of the cost in the current US system. (JEL D82, H24, J64, J65)

published proceedings

  • AMERICAN ECONOMIC JOURNAL-MACROECONOMICS

author list (cited authors)

  • Fuller, D. L., Ravikumar, B., & Zhang, Y.

citation count

  • 8

complete list of authors

  • Fuller, David L||Ravikumar, B||Zhang, Yuzhe

publication date

  • April 2015