Imperfections in risk and capital markets imply that individuals who lose jobs suffer from imperfect smoothing of consumption across states and times. Compared to the first best, there will be too little search. Optimal unemployment programs, which balance the marginal benefit of consumption...

This paper analyzes a social insurance system that integrates unemployment insurance with a pension program through an individual account, allowing workers to borrow against their future wage income to finance consumption during an unemployment episode and thus improving their search incentives...