In this paper we compare the welfare effects of unemployment insurance (UI) with an universal basic income (UBI) system in an economy with idiosyncratic shocks to employment. Both policies provide a safety net in the face of idiosyncratic shocks. While the unemployment insurance program should...

In this paper we compare the welfare effects of unemployment insurance (UI) with a universal basic income (UBI) system in an economy with idiosyncratic shocks to employment. Both policies provide a safety net in the face of idiosyncratic shocks. While the unemployment insurance program should do...

We quantify foreign aid's potential as an insurance mechanism against macroeconomic shocks. Within a dynamic model of aid flows between two endowment economies, we show that at least three fourths of the large welfare costs of macroeconomic fluctuations in poor countries could be alleviated by a...

Gains from trade come a certain degree of specialisation among trade partners. Specialisation in the case of an agriculture-based developing country might be feared to imply a higher reliance than ever on low skill labour. Trade might thus be seen as a step away from the much awaited structural...

Existing estimates of the welfare cost of business cycles suggest that it is quite low and might well be minuscule. Many of these estimates are based on aggregate U.S. consumption data. Arguably, because markets are incomplete and risk-sharing is imperfect, the welfare costs computed with...

In the presence of even small moral hazard, Hansen & Imrohoroglu (1992) show that the unemployment insurance should be much less generous than without moral hazard. This has important implications in the light of recent reforms. We question this result by adding a social component to the model:...

In this paper, we document empirical regularities in the foreign aid flows to developing countries over the last three decades. In spite of a large body of literature on foreign aid and its impact on recipients, surprisingly little is known about its business cycle characteristics. We show that,...

This paper investigates the importance of market incompleteness by comparing the rates of risk aversion estimated from complete and incomplete markets environments. For the incomplete-markets case, we use consumption data for the 50 US states. We find that the rate of risk aversion under the...

We document the real business cycle properties of foreign aid to poor countries. We show that aid exhibits the following empirical regularities over a twenty-five year period. First, it represents a significant source of income for the recipients. Second, it is very volatile--two to three times...