1. Explain why dc/db is relevant for the optimal EI benefit rate. Based on this parameter only which country should have the higher EI benefits?

2. Explain why p,b is relevant in determining the optimal EI benefit rate. Based on this parameter only, which country should have higher EI benefits?

3.Assuming the countries are identical in all other dimensions, which country would you recommend should have the highest EI benefit rate? Which should have the lowest?

Individuals have utility function given by U(C) VC. Individuals earn a wage w when em- ployed and have no earnings when unemployed. The probability of being unemployed is p. The government intervenes and provides employment insurance (EI) benefits b to the unemployed. This is financed by a lump sum tax t paid by the employed. Canada, the United States, and Mexico are considering reforms of their employment insurance programs and have invited you to give your expert opinion on the optimal policy. They have estimated two parameters that they think will be useful in guiding your advice: The change in consumption while unemployed for a $1 increase in the El benefit rate (af) and the elasticity of being unemployed with respect to the benefit rate (Epub = y). The estimates are as follows ac ab Ep,b Canada United States Mexico 0.2 0.3 0.3 0.8 0.8 0.5 Individuals have utility function given by U(C) VC. Individuals earn a wage w when em- ployed and have no earnings when unemployed. The probability of being unemployed is p. The government intervenes and provides employment insurance (EI) benefits b to the unemployed. This is financed by a lump sum tax t paid by the employed. Canada, the United States, and Mexico are considering reforms of their employment insurance programs and have invited you to give your expert opinion on the optimal policy. They have estimated two parameters that they think will be useful in guiding your advice: The change in consumption while unemployed for a $1 increase in the El benefit rate (af) and the elasticity of being unemployed with respect to the benefit rate (Epub = y). The estimates are as follows ac ab Ep,b Canada United States Mexico 0.2 0.3 0.3 0.8 0.8 0.5