Abstract
In the presence of asymmetric information, adding a public unemployment insurance (UL) to labor contracts is potentially Pareto improving. Unfortunately, most successful mechanisms are manipulable by coalitions. This leads us to design coalition incentive compatible UI systems. Their welfare effect depends on which coalitions are feasible. Whenever firm-UI coalitions may form, one ends up with an impossibility result: as contracts are made coalition proof, they no longer Pareto dominate firm-worker contracts. However, if only firm-worker coalitions are feasible, the public UI is strictly Pareto improving, even though it cannot implement the welfare levels that would be reached if no coalition were feasible at all.
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