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Uncertain altruism and the provision of long term care

  • CREMER, Helmuth

    (Toulouse School of Economics, France)

  • gahvari, Firouz

    (Department of Economics, University of Illinois, USA)

  • PESTIEAU, Pierre

    ()

    (CREPP, Université de Liège; Université catholique de Louvain, CORE, Belgium; Toulouse School of Economics, France)

This paper studies the role of private and public long term care (LTC) insurance programs in a world in which family assistance is uncertain. Benefits are paid in case of disability but cannot be conditioned (directly), due to moral hazard problems, on family aid. Under a topping up scheme, when the probability of altruism is high, there is no need for insurance. At lower probabilities, insurance is required, thought not full insurance. This can be provided either privately or publicly if insurance premiums are fair, and publicly otherwise. Moreover, the amount of LTC insurance varies negatively with the probability of altruism. With an opting out scheme, there will be three possible equilibria depending on the children’s degree of altruism being “low,” “moderate,” or “very high”. These imply: full LTC insurance with no aid from children, less than full insurance just enough to induce aid, and full insurance with aid. Fair private insurance markets can support the first equilibrium, but not the other two equilibria. Only a public opting-out scheme can attain them by creating incentives for self-targeting and ensuring that only dependent parents who are not helped by their children seek help from the government.

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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2013047.

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Date of creation: 23 Sep 2013
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Handle: RePEc:cor:louvco:2013047
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  1. CREMER, Helmuth & PESTIEAU, Pierre & PONTHIERE, Grégory, . "The economics of long-term care: a survey," CORE Discussion Papers RP -2466, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. David C. Grabowski & Edward C. Norton & Courtney H. Van Houtven, 2012. "Informal Care," Chapters, in: The Elgar Companion to Health Economics, Second Edition, chapter 30 Edward Elgar.
  3. Cremer, Helmuth & Gahvari, Firouz & Pestieau, Pierre, 2013. "Endogenous altruism, redistribution, and long term care," TSE Working Papers 13-386, Toulouse School of Economics (TSE).
  4. LEROUX, Marie-Louise & PESTIEAU, Pierre, 2011. "Social security and family support," CORE Discussion Papers 2011045, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  5. Laurence J. Kotlikoff & Avia Spivak, 1979. "The Family as an Incomplete Annuities Market," UCLA Economics Working Papers 151, UCLA Department of Economics.
  6. Chakrabarti, Subir & Lord, William & Rangazas, Peter, 1993. "Uncertain Altruism and Investment in Children," American Economic Review, American Economic Association, vol. 83(4), pages 994-1002, September.
  7. Nigar Hashimzade & Jean Hindriks & Gareth D. Myles, 2006. "Solutions Manual to Accompany Intermediate Public Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262582694, June.
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