* Iterate to convergence.

### Unemployment Insurance with Full Information

### Full Information

Another benchmark model helps set the stage for the model with private information that we ultimately want to study.

But the worker's consumption is not smoothed across states of

employment and unemployment unless $V=V^e$.

### The incentive problem

### Incentive Problem

The preceding efficient insurance scheme requires that the insurance agency

control both $c$ and $a$.

relies on the agency's ability to control *both* the unemployed

worker's consumption *and* his search effort.

## Unemployment Insurance with Private Information

## Private Information

Following Shavell and Weiss (1979) {cite}`Shavell_Weiss_79` and

Hopenhayn and Nicolini (1997) {cite}`Hopenhayn_Nicolini_97`, now assume that the unemployment insurance agency cannot