What can organizations do to minimize wasteful year-end spending before the annual budget expires? I introduce a two-period model to derive the optimal budget roll-over and audit rules. A principal tasks an agent with using their budget to fulfill the organization's spending needs, which are private information of the agent. The agent can misuse funds for private benefit at the principal's expense. The optimal rules are to allow the agent to roll-over a share of the unused funds, but not necessarily the full share, and in most cases to audit only sufficiently large spending. The shape of the optimal audit rule can change once fund roll-over is allowed, so the model has important implications for auditors. An extension with endogenous budget levels shows that strategically underfunding the agent can be optimal.

We leverage discontinuities in Poland that quasi-randomly determine unemployment benefit levels and duration. we report three main findings: (1) The distortionary effects of benefit increases are larger than those of cost-equivalent benefit extensions. (2) The distortionary effects of benefit duration and benefit generosity \textit{interact}: The unemployment effect of generosity nearly doubles when benefit duration is extended. And (3), in addition to delaying re-employment, more generous benefits significantly increase the hazard that employed workers become unemployed. We use the results to build a model of optimal unemployment insurance that accounts for moral hazard among the employed.The results suggest that the total distortion of UI among the employed is larger than that among the unemployed. Accounting for endogenous separations increases the efficiency loss induced by an increase in the benefit level substantially.

This paper estimates the extent of adverse selection and moral hazard in social insurance for entrepreneurs using rich administrative data and exogenous variation from Finland. We use a reform that allows certain entrepreneurs to freely choose their level of insurance contributions. We use this reform along with a difference-in-differences approach to implement empirical tests of adverse selection and moral hazard. First, we find evidence of no moral hazard effects when considering whether entrepreneurs who opt into higher levels of social insurance tend to use it more. Second, by considering whether entrepreneurs with higher pre-reform risks select into higher levels of social insurance, we find no evidence of adverse selection. These findings are important for the design of social insurance for entrepreneurs.