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Bivariate risk attitudes, informal care and saving

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  • Desu Liu

Abstract

The article examines choices of saving and caregiving for informal caregivers who will face uncertainty in health status of elderly parents. The caregivers have a general form of utility with two attributes: wealth and parental health. Informal care will substitute for future need of formal care when parents are in good health. The article first studies the optimal levels of saving and of caregiving and the link between them. Comparative statics results depending on partial risk aversion or correlation attitude are then presented. These results concern the effects of changes in the opportunity cost of caregiving, the share of expected bequest, the health status and the interest rate. The analysis is also extended to investigate the role of cross-prudence/imprudence in wealth when a background health risk is introduced.

Suggested Citation

  • Desu Liu, 2016. "Bivariate risk attitudes, informal care and saving," Applied Economics, Taylor & Francis Journals, vol. 48(39), pages 3714-3722, August.
    • Handle: RePEc:taf:applec:v:48:y:2016:i:39:p:3714-3722
    DOI: 10.1080/00036846.2016.1142664
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