ANÁLISIS DE LA REGIÓN HIPERVARIABLE I DEL mtDNA (HVS-I).

Another issue that has received a lot of attention in the political debate on an EUBS is moral hazard. In this project, these issues are examined on the basis of eight case studies that map the experience of countries with a multi-tiered unemployment insurance scheme.

The issue of institutional moral hazard

The concern of institutional moral hazard inevitably emerges in multi-tiered systems where a central government can be regarded as ‘insuring’ or ‘reinsuring’ the risk of unemployment for lower levels of government. Moral hazard is described by Barr (2004) as a situation in which an insured person is able to affect an insurance firm’s liability without the latter’s knowledge. Institutional moral hazard refers to a situation in which two levels of government deal with the governance of a social risk, and one level covers this risk – a task that could in principle be tackled by the other level as well (Vandenbroucke & Luigjes, 2016). Each level of government is politically accountable vis-à-vis its own political constituency. In the context of unemployment insurance, one can imagine a situation in which a country’s federal government is responsible for the financing and payment of unemployment benefits, whereas the activation of the unemployed and related policies are left to the lower levels of government. The behaviour of the latter has an impact on the former, in the sense that the quality of the policies

implemented interacts with the costs borne by the federal level.18 _{For example, if activation policies are}

poorly designed or implemented, they can be less effective in eradicating unemployment, thereby pushing up the costs of unemployment benefits at the federal level. Thus, policies implemented by one level of government can influence the actual incidence of the social risk at this level, and in turn, the cost to be covered by the other level of government. Moral hazard is intrinsically linked to asymmetric information. In the example, the federal policy-makers lack sufficient information to distinguish between the effects of policy and pure risk factors on unemployment benefits.19 _{The former is under}

the control of lower levels of government while the latter is not. Institutional moral hazard matters especially when one expects that lower levels can determine these costs to a great extent and when there are differences in the quality of the policies implemented.

This study looked in-depth into the incidence of institutional moral hazard in eight countries: Australia, Austria, Belgium, Canada, Denmark, Germany, Switzerland and the US. For each country, the benefits and the activation sides of unemployment and social assistance as well as the interplay between them were investigated. All countries are characterised by a multi-tiered insurance scheme, which commonly involves at least three levels of government (and frequent interactions with other actors, such as the social partners).

In each of the studied countries, the existing unemployment insurance system is already fairly complex. The introduction of a European scheme would thus add an additional layer of complexity, as it would interfere with the already very complicated national systems.20 _{This constitutes a first challenge to the}

EUBS. Second, institutional moral hazard operates through the shifting of caseloads between social assistance and unemployment insurance, through poor activation policies, and - for some types of EUBS – by diminishing the coverage or generosity of the regional schemes to shift costs to the federal level. From the case studies it is clear that institutional moral hazard is embedded in any multi-tiered insurance scheme - it is an intrinsic characteristic. The real challenge thus lies in its mitigation or partial avoidance if a European scheme were to be introduced. In practice, this could be done by raising the costs of manipulation and reducing any information asymmetries. One way to achieve this goal would be by centralising the risk (i.e. ending the scheme’s multi-tiered setup). An example of this approach is the German case, where the government centralised a social assistance scheme that had been run locally into a federally run scheme. In the eight countries examined, different solutions were put forward including conditional funding, minimum requirements, and financial incentives, which are often subject to continual reforms. Moreover, the adverse effects of institutional moral hazard and the costs of mitigating it, have to be weighed against the benefits of insurance, such as economic stabilisation,

18 _{Unemployment evidently is a risk that is both endogenous and exogenous for lower levels of government. While}

they are able to influence the unemployment rate through policies, there are many other factors that contribute to unemployment (the international business cycle being one example).

19 _{In the context of institutional moral hazard, one could argue that the federal government may have enough}

information, but that the issue is that it does not have enough power to change the process.

20 _{On the other hand, one could also argue that an EUBS could be an opportunity for simplifying the national}

redistribution, social cohesion and growth. In other words, a certain level of institutional moral hazard may be regarded as ‘a price to pay’ to achieve stabilisation and risk-sharing.

Another factor to take into account is the distinction between institutional moral hazard as an objective reality, public perceptions of the issue and public concerns about it (which depends on countries’ views on the generosity of systems or tolerance regarding moral hazard). Here, substantial differences among the eight countries surfaced, notably between the US and Europe. Building mutual trust among the EU Member States would therefore be an important consideration if an EUBS were to be established.

How can moral hazard be addressed?

Within the project, several ways to address moral hazard are emphasised: experience rating, claw-back, the presence of a trigger, and common minimum standards. The important role of minimum standards

has already been discussed in previous sections. Similar to the issue of permanent transfers, moral hazard could be addressed by equipping the supranational fund with experience rating and claw-back, to link the pay-in for the EUBS to its use. Member States that use the fund more or have a higher likelihood of doing so, have to contribute more. This would discourage countries from shifting caseloads to the EUBS. More information on these two mechanisms and their operationalisation in the study is provided in the previous section.

In addition to these two mechanisms, a trigger may prove to be another relevant tool. In this project, only the equivalent EUBS variants are conditioned by a trigger. Without a trigger to activate the genuine EUBS variants, benefits would be paid out to any eligible unemployed person, regardless of the activation measures that Member States provide. Under these circumstances, Member States may have less incentive to offer activation measures to their unemployment insurance caseload (or at least the caseload covered by the EUBS) than when they are fully financially responsible for benefit payments. In the reinsurance EUBS variants (which are tied to a trigger in this study), ineffective activation policies increase the costs for Member States during periods in which they are not triggered. Moreover, a reinsurance EUBS would most likely be triggered in a period of high unemployment, precisely when activation policies are less effective. Ineffective activation policies therefore are less likely to be a structural problem, and less likely to be perceived as institutional moral hazard, in the context of a reinsurance scheme.