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Long-term care expenditures and investment decisions under uncertainty

Author

Listed:
  • Pablo Garcia Sanchez

    (Banque centrale du Luxembourg, Département Économie et Recherche)

  • Luca Marchiori

    (Banque centrale du Luxembourg, Département Économie et Recherche)

  • Olivier Pierrard

    (Banque centrale du Luxembourg, Département Économie et Recherche)

Abstract

Long-term care (LTC) expenditures for the elderly are high in developed countries and are expected to increase further as the population ages. Additionally, LTC costs vary significantly across individuals and are unknown early in life. In this paper, we introduce uncertainty regarding the timing of future LTC costs into a life-cycle model with endogenous aging. We then analyze how this uncertainty impacts the optimal behavior of agents. Our findings demonstrate that uncertainty reduces health investment during youth and diminishes the effectiveness of health investment subsidies. These results suggest that uncertainty should be carefully considered in models that examine the positive or normative aspects of health investment.

Suggested Citation

  • Pablo Garcia Sanchez & Luca Marchiori & Olivier Pierrard, 2025. "Long-term care expenditures and investment decisions under uncertainty," Journal of Population Economics, Springer;European Society for Population Economics, vol. 38(1), pages 1-23, March.
    • Handle: RePEc:spr:jopoec:v:38:y:2025:i:1:d:10.1007_s00148-025-01075-6
    DOI: 10.1007/s00148-025-01075-6
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    More about this item

    Keywords

    Health; Long-term care costs; Uncertainty; Stochastic model;
    All these keywords.

    JEL classification:

    • C60 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - General
    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • I12 - Health, Education, and Welfare - - Health - - - Health Behavior
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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