Understanding the welfare effects of unemployment insurance policy in general equilibrium

This paper analyzes the welfare effects of unemployment insurance reforms in a general equilibrium incomplete market model. In particular, it decomposes the total welfare effect for each individual into different factors. I consider a model where the consumers face an uninsurable unemployment risk, can save in an interest-bearing asset, and are subject to a borrowing constraint. The labor market is modeled using a Diamond-Mortensen-Pissarides style search and matching model. The decomposition exercises reveal how each factor contributes to the heterogeneity of welfare effects among different consumers.