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Externality and Strategic Interaction in the Location Choice of Siblings under Altruism toward Parents

Author

Listed:
  • Meliyanni Johar

    (Economics Discipline Group and Centre for the Study of Choice, Business School, University of Technology Sydney)

  • Shiko Maruyama

    (School of Economics and ARC Centre of Excellence in Population Ageing Research, Australian School of Business, University of New South Wales)

Abstract

When siblings wish for the wellbeing of their elderly parents, the cost of care giving and long-term commitment creates a free-rider problem among siblings. We estimate a sequential game to investigate externality and strategic interaction among adult siblings regarding their location choice relative to their elderly parents. Using the US Health and Retirement Survey, we find a positive externality and strategic interaction. The first-mover advantage of eldest children and the prisoner's dilemma are likely to exist but their magnitudes are negligible compared with inefficiency in joint utility. Inefficiency is large in a family with an educated, widowed mother and with educated siblings who are younger (relative to parents), married, and similar to each other. Had siblings fully internalized externality and jointly maximized utility sum in 2010, 17% more parents with multiple children would have had a child nearby. Public policies that reduce children's private costs may enhance social welfare.

Suggested Citation

  • Meliyanni Johar & Shiko Maruyama, 2012. "Externality and Strategic Interaction in the Location Choice of Siblings under Altruism toward Parents," Working Papers 201201, ARC Centre of Excellence in Population Ageing Research (CEPAR), Australian School of Business, University of New South Wales.
    • Handle: RePEc:asb:wpaper:201201
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    References listed on IDEAS

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    Cited by:

    1. Michelle Sovinsky & Steven Stern, 2016. "Dynamic modelling of long-term care decisions," Review of Economics of the Household, Springer, vol. 14(2), pages 463-488, June.
    2. Steven Stern, 2014. "O Brother, Where Art Thou? We Need Your Help," Department of Economics Working Papers 14-08, Stony Brook University, Department of Economics.
    3. Shiko Maruyama & Meliyanni Johar, 2017. "Do siblings free‐ride in “being there” for parents?," Quantitative Economics, Econometric Society, vol. 8(1), pages 277-316, March.

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    More about this item

    JEL classification:

    • D13 - Microeconomics - - Household Behavior - - - Household Production and Intrahouse Allocation
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D62 - Microeconomics - - Welfare Economics - - - Externalities

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