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Nursing home choice, family bargaining, and optimal policy in a Hotelling economy

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  • Marie‐Louise Leroux
  • Gregory Ponthiere

Abstract

We develop a model of family bargaining to study the impact of the distribution of bargaining power within the family on the choice of nursing homes by families, and on the locations and prices chosen by nursing homes in a Hotelling economy. In the baseline (static) model, where the dependent parent cares only about the location of the nursing home, the markup of nursing homes is increasing in the bargaining power of the dependent parent, and nursing homes are located at the extreme periphery. We compare the laissez‐faire with the social optimum (which involves more central locations of nursing homes), and examine its decentralization in first‐best and second‐best settings. We explore the robustness of our results to introducing a bequest motive in a dynamic overlapping generations model, which allows us to study the joint dynamics of wealth accumulation and nursing home prices. If the bequest motive is strong, the markup is decreasing in the bargaining power of the dependent. However, wealth accumulation, by reducing interest rates, raises markup rates and nursing homes prices.

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  • Marie‐Louise Leroux & Gregory Ponthiere, 2020. "Nursing home choice, family bargaining, and optimal policy in a Hotelling economy," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 22(4), pages 899-932, August.
    • Handle: RePEc:bla:jpbect:v:22:y:2020:i:4:p:899-932
    DOI: 10.1111/jpet.12327
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    2. Ponthiere, Gregory & Thibault, Emmanuel, 2023. "Life Expectancy, Income and Long-Term Care: The Preston Curve Reexamined," GLO Discussion Paper Series 1335, Global Labor Organization (GLO).

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    JEL classification:

    • D10 - Microeconomics - - Household Behavior - - - General
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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