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Long-Term Care with Myopia

Author

Listed:
  • Justina Klimaviciute
  • Pierre Pestieau
  • Jerome Schoenmaeckers

Abstract

This paper analyzes the design of a social policy scheme for long-term care in a setting where disabled elderly individuals receive care both informally, from family members, and formally, from professional providers. We introduce two key features: informal caregivers bear substantial physiological and psychological costs, and they tend to be myopic with respect to these health consequences. Under perfect observability, an optimal policy can induce caregivers to exercise caution and provide an appropriate level of informal care. However, when individual characteristics are not common knowledge, public policy must resort to distortions and indirect instruments to guide agents toward optimal behavior - a classic second-best problem.

Suggested Citation

  • Justina Klimaviciute & Pierre Pestieau & Jerome Schoenmaeckers, 2026. "Long-Term Care with Myopia," CESifo Working Paper Series 13016, CESifo.
    • Handle: RePEc:ces:ceswps:_13016
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    Keywords

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    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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