Advanced Search
MyIDEAS: Login to save this paper or follow this series

Behavioral biases and long term care insurance: A political economy approach

Contents:

Author Info

  • DE DONDER, Philippe

    ()
    (Toulouse School of Economics (GREMAQ-CNRS and IDEI), France)

  • LEROUX, Marie-Louise

    ()
    (UQAM, Canada; Université catholique de Louvain, CORE, B-1348 Louvain-la-Neuve, Belgium)

Abstract

We develop a model where individuals all have the same probability of becoming dependent and vote over the social long term care insurance contribution rate before buying additional private insurance and saving. We study three types of behavioral biases, all having in common that agents under-weight their dependency probability when taking private decisions. Sophisticated procrastinators anticipate their mistake when voting, while optimistic and myopic agents have preferences that are consistent across choices. Optimists under-estimate their own probability of becoming dependent but know the average probability while myopics underestimate both. Sophisticated procrastinators attain the first-best allocation while myopics and optimists insure too little and save too much. Myopics and optimists more (resp., less) biased than the median are worse off (resp., better off), at the majority voting equilibrium, when private insurance is available than when it is not.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://uclouvain.be/cps/ucl/doc/core/documents/coredp2013_20web.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2013020.

as in new window
Length:
Date of creation: 17 May 2013
Date of revision:
Handle: RePEc:cor:louvco:2013020

Contact details of provider:
Postal: Voie du Roman Pays 34, 1348 Louvain-la-Neuve (Belgium)
Phone: 32(10)474321
Fax: +32 10474304
Email:
Web page: http://www.uclouvain.be/core
More information through EDIRC

Related research

Keywords: majority voting; myopia; optimism; sophisticated procrastinators; complementary private insurance; dependency linked annuity;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Jeffrey R. Brown & Amy Finkelstein, 2007. "Why is the market for long-term care insurance so small?," NBER Chapters, in: Trans-Atlantic Public Economics Seminar (TAPES), Public Policy and Retirement, pages 1967-1991 National Bureau of Economic Research, Inc.
  2. Helmuth Cremer & Kerstin Roeder, 2012. "Long-Term Care Policy, Myopia and Redistribution," CESifo Working Paper Series 3843, CESifo Group Munich.
  3. Jeffrey R. Brown & Amy Finkelstein, 2008. "The Interaction of Public and Private Insurance: Medicaid and the Long-Term Care Insurance Market," American Economic Review, American Economic Association, vol. 98(3), pages 1083-1102, June.
  4. CREMER, Helmuth & DE DONDER, Philippe & MALDONADO, Dario & PESTIEAU, Pierre, . "Voting over type and generosity of a pension system when some individuals are myopic," CORE Discussion Papers RP -2051, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  5. DE DONDER, Philippe & PESTIEAU, Pierre, 2011. "Private, social and self insurance for long-term care: A political economy analysis," CORE Discussion Papers 2011053, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  6. Alexander Ludwig & Alexander Zimper, 2007. "A Parsimonious Model of Subjective Life Expectancy," MEA discussion paper series 07154, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
  7. Nuscheler, Robert & Roeder, Kerstin, 2013. "The political economy of long-term care," European Economic Review, Elsevier, vol. 62(C), pages 154-173.
  8. François Salanié & Nicolas Treich, 2009. "Regulation in Happyville," Economic Journal, Royal Economic Society, vol. 119(537), pages 665-679, 04.
  9. Pierre Pestieau & Grégory Ponthière, 2010. "Long term care insurance puzzle," PSE Working Papers halshs-00564862, HAL.
  10. Jeffrey R. Brown & Amy Finkelstein, 2009. "The Private Market for Long-Term Care Insurance in the United States: A Review of the Evidence," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 76(1), pages 5-29.
  11. Jeffrey R. Brown & Amy Finkelstein, 2011. "Insuring Long-Term Care in the United States," Journal of Economic Perspectives, American Economic Association, vol. 25(4), pages 119-42, Fall.
  12. Pauly, Mark V, 1990. "The Rational Nonpurchase of Long-term-Care Insurance," Journal of Political Economy, University of Chicago Press, vol. 98(1), pages 153-68, February.
  13. Amy Finkelstein & Kathleen McGarry, 2006. "Multiple Dimensions of Private Information: Evidence from the Long-Term Care Insurance Market," American Economic Review, American Economic Association, vol. 96(4), pages 938-958, September.
  14. Hamermesh, Daniel S, 1985. "Expectations, Life Expectancy, and Economic Behavior," The Quarterly Journal of Economics, MIT Press, vol. 100(2), pages 389-408, May.
  15. Sloan, Frank A & Norton, Edward C, 1997. "Adverse Selection, Bequests, Crowding Out, and Private Demand for Insurance: Evidence from the Long-Term Care Insurance Market," Journal of Risk and Uncertainty, Springer, vol. 15(3), pages 201-19, December.
  16. repec:hal:wpaper:halshs-00564862 is not listed on IDEAS
  17. Ted O'Donoghue & Matthew Rabin, 2003. "Studying Optimal Paternalism, Illustrated by a Model of Sin Taxes," American Economic Review, American Economic Association, vol. 93(2), pages 186-191, May.
  18. Amy Finkelstein & Erzo F. P. Luttmer & Matthew J. Notowidigdo, 2013. "What Good Is Wealth Without Health? The Effect Of Health On The Marginal Utility Of Consumption," Journal of the European Economic Association, European Economic Association, vol. 11, pages 221-258, 01.
  19. Markus Haavio & Kaisa Kotakorpi, 2009. "The Political Economy of Sin Taxes," CESifo Working Paper Series 2650, CESifo Group Munich.
  20. Les Mayhew & Martin Karlsson & Ben Rickayzen, 2010. "The Role of Private Finance in Paying for Long Term Care," Economic Journal, Royal Economic Society, vol. 120(548), pages F478-F504, November.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:cor:louvco:2013020. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Alain GILLIS).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.