Johannes Spinnewijn's homepage

Unemployed but Optimistic: Optimal Insurance Design with Biased Beliefs - R&R Journal of the European Economic Association

Abstract: This paper analyzes how biased beliefs about employment prospects affect the optimal design of unemployment insurance. Empirically, I find that the unemployed greatly overestimate how quickly they will find work. As a consequence, they would search too little for work, save too little for unemployment and deplete their savings too rapidly when unemployed. I analyze the use of "sufficient-statistics" formula to characterize the optimal unemployment policy when beliefs are biased and revisit the desirability of providing liquidity to the unemployed. I also find that the optimal unemployment policy may involve increasing benefits during the unemployment spell.

Heterogeneity, Demand for Insurance and Adverse Selection (Web Appendix) - REVISED

Abstract: Recent empirical work finds that surprisingly little variation in the demand for insurance is explained by heterogeneity in risks. I distinguish between risk preferences and demand frictions underlying the residual variation. Demand frictions induce a systematic difference between the true and revealed value of insurance. Using a sufficient statistics approach that accounts for this alternative source of heterogeneity, I find that the welfare conclusions regarding adversely selected markets are substantially different. The source of heterogeneity is also essential for the evaluation of policy interventions intended to reduce adverse selection like insurance subsidies and mandates, risk-adjusted pricing and information policies.

Production vs. Revenue Efficiency with Limited Tax Capacity: Theory and Evidence from Pakistan - NEW (with Michael Best, Anne Brockmeyer, Henrik Kleven, Mazhar Waseem)

Abstract: This paper analyzes the design of tax systems under imperfect enforcement. A common policy in developing countries is to impose minimum tax schemes whereby firms are taxed either on profits or on turnover (with a much lower tax rate on turnover), depending on which tax liability is larger. This is a production inefficient tax policy, but has been motivated by the idea that turnover taxes are harder to evade. Such schemes give rise to kink points in firms' choice sets as the tax rate and tax base jump discontinuously at a profit rate threshold. Using administrative tax records on corporations in Pakistan, we find large bunching around the minimum tax kink. We show that the combined tax rate and tax base change at the kink provides small real incentives for bunching, making the policy ideal for eliciting evasion. We develop an empirical approach allowing us to put (tight) bounds on the evasion response to switches between profit and turnover taxation, and find that turnover taxes reduce evasion by up to 60-70% of corporate income. Our analysis sheds new light on the use of production-inefficient tax tools in countries with limited tax capacity and can easily be replicated in other contexts as the quasi-experimental variation needed is ubiquitous.

Revising Claims and Resisting Ultimatums in Bargaining Games (with Frans Spinnewyn)

Abstract: We propose a mechanism which implements a unique solution to the bargaining problem with two players in subgame-perfect equilibrium. Players start by making claims and accept a compromise only if they cannot gain by pursuing their claim in an ultimatum. The player offering the lowest resistance to his opponent's claim can propose a compromise. The unique solution depends on the extent to which claims can be revised. If no revisions are allowed, compatible claims implement the Nash solution. If all revisions are allowed, maximal claims implement the Kalai-Smorodinsky solution.

Schooling Success and Perceived Returns to Education: Evidence from India (with Sandra Sequeira and Guo Xu)

The Perceptions of Employment Prospects during the Unemployment Spell (with Andreas Mueller)

The Identification of Risk Preferences and Perceptions using Choice Data (with Philipp Kircher)

"Hard cash or a secure job - which is better?" featured in Financial Times (February 7, 2009) (link)
"The Role of Commitment" comment on "On the interaction between subsidiarity and interpersonal solidarity" by Jacques Dreze (link)
"En als we langdurig werklozen meer zouden betalen?" Op-ed in De Morgen (February 12, 2012) (link)