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

Behavioral Biases and Long Term Care Annuities: A Political Economy Approach

Contents:

Author Info

  • De Donder, Philippe
  • Leroux, Marie-Louise

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 Örst-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 o§ (resp., better o§), 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://idei.fr/doc/by/de_donder/PDD-MLL%20-%20rev1-v6final.pdf
File Function: Full text
Download Restriction: no

Bibliographic Info

Paper provided by Toulouse School of Economics (TSE) in its series TSE Working Papers with number 12-352.

as in new window
Length:
Date of creation: Oct 2012
Date of revision: Feb 2013
Publication status: Published in The B. E. Journal of Economic Analysis & Policy (Advances), vol.�14, n°2, juillet 2013, p.�551-575.
Handle: RePEc:tse:wpaper:26383

Contact details of provider:
Phone: (+33) 5 61 12 86 23
Web page: http://www.tse-fr.eu/
More information through EDIRC

Related research

Keywords:

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. 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.
  2. Aldashev, Gani & Baland, Jean-Marie, 2012. "Awareness and AIDS: A Political Economy Perspective," CEPR Discussion Papers 8908, C.E.P.R. Discussion Papers.
  3. Cremer, Helmuth & Roeder, Kerstin, 2013. "Long-term care policy, myopia and redistribution," Munich Reprints in Economics 20065, University of Munich, Department of Economics.
  4. CREMER, Helmuth & DE DONDER, Philippe & MALDONADO, Dario & PESTIEAU, Pierre, 2006. "Voting over type and generosity of a pension system when some individuals are myopic," CORE Discussion Papers 2006079, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  5. Brown, Jeffrey R. & Finkelstein, Amy, 2007. "Why is the market for long-term care insurance so small?," Journal of Public Economics, Elsevier, vol. 91(10), pages 1967-1991, November.
  6. Alexander Ludwig & Alexander Zimper, 2008. "A parsimonious model of subjective life expectancy," Working Papers 74, Economic Research Southern Africa.
  7. 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.
  8. 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.
  9. 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).
  10. 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.
  11. Finkelstein, Amy & Luttmer, Erzo F. P. & Notowidigdo, Matthew J., 2008. "What Good Is Wealth without Health? The Effect of Health on the Marginal Utility of Consumption," Working Paper Series rwp08-036, Harvard University, John F. Kennedy School of Government.
  12. 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.
  13. Gani Aldashev & Jean-Marie Baland, 2008. "Awareness and AIDS: A Political Economy Model," Carlo Alberto Notebooks 92, Collegio Carlo Alberto.
  14. Haavio, Markus & Kotakorpi, Kaisa, 2011. "The political economy of sin taxes," European Economic Review, Elsevier, vol. 55(4), pages 575-594, 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. Nuscheler, Robert & Roeder, Kerstin, 2013. "The political economy of long-term care," European Economic Review, Elsevier, vol. 62(C), pages 154-173.
  17. 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.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. De Donder, Philippe & Pestieau, Pierre, 2013. "Private, social and self-insurance for long-term care in the presence of family help: A political economy analysis," CEPR Discussion Papers 9587, C.E.P.R. Discussion Papers.
  2. CAULIER, Jean-François & MAULEON, Ana & VANNETELBOSCH, Vincent, 2013. "Allocation rules for coalitional network games," CORE Discussion Papers 2013032, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).

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:tse:wpaper:26383. 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: ().

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.