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Uncertain altruism and the provision of long term care

Author

Listed:
  • 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)

Abstract

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.

Suggested Citation

  • CREMER, Helmuth & gahvari, Firouz & PESTIEAU, Pierre, 2013. "Uncertain altruism and the provision of long term care," CORE Discussion Papers 2013047, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  • Handle: RePEc:cor:louvco:2013047
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    References listed on IDEAS

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    1. Kotlikoff, Laurence J & Spivak, Avia, 1981. "The Family as an Incomplete Annuities Market," Journal of Political Economy, University of Chicago Press, vol. 89(2), pages 372-391, April.
    2. CREMER, Helmuth & PESTIEAU, Pierre & PONTHIERE, Grégory, 2012. "The economics of long-term care: a survey," CORE Discussion Papers 2012030, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    3. M.L. Leroux & P. Pestieau, 2014. "Social Security and Family Support," Canadian Journal of Economics, Canadian Economics Association, vol. 47(1), pages 115-143, February.
    4. Helmuth Cremer & Pierre Pestieau, 2014. "Social long-term care insurance and redistribution," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 21(6), pages 955-974, December.
    5. Cremer Helmuth & Gahvari Firouz & Pestieau Pierre, 2013. "Endogenous Altruism, Redistribution, and Long-Term Care," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 14(2), pages 499-524, July.
    6. Cremer, Helmuth & Roeder, Kerstin, 2013. "Long-term care policy, myopia and redistribution," Journal of Public Economics, Elsevier, vol. 108(C), pages 33-43.
    7. Donald Cox & Oded Stark, 2007. "On the Demand for Grandchildren: Tied Transfers and the Demonstration Effect," Chapters,in: Handbook on the Economics of Happiness, chapter 18 Edward Elgar Publishing.
    8. 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, January.
    9. 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.
    10. Pierre Pestieau & Grégory Ponthière, 2011. "The Long Term Care Insurance Puzzle," Post-Print halshs-00754802, HAL.
    11. 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 Publishing.
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    Citations

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    Cited by:

    1. Cremer, Helmuth & Roeder, Kerstin, 2013. "Long-term care and lazy rotten kids," TSE Working Papers 13-424, Toulouse School of Economics (TSE).
    2. Cremer Helmuth & Gahvari Firouz & Pestieau Pierre, 2013. "Endogenous Altruism, Redistribution, and Long-Term Care," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 14(2), pages 499-524, July.
    3. Helmuth Cremer & Pierre Pestieau, 2014. "Social long-term care insurance and redistribution," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 21(6), pages 955-974, December.
    4. CREMER, Helmuth & PESTIEAU, Pierre, 2014. "Means-tested long term care and family transfers," CORE Discussion Papers 2014011, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    5. Canta, Chiara & Cremer, Helmuth & Gahvari, Firouz, 2016. "Maybe "honor thy father and thy mother": uncertainfamily aid and the design of social long term care insurance," TSE Working Papers 16-685, Toulouse School of Economics (TSE).
    6. Pestieau, Pierre & Ponthiere, Gregory, 2016. "Long-term care and births timing," Journal of Health Economics, Elsevier, vol. 50(C), pages 340-357.
    7. Bauwens, Luc & Grigoryeva, Lyudmila & Ortega, Juan-Pablo, 2016. "Estimation and empirical performance of non-scalar dynamic conditional correlation models," Computational Statistics & Data Analysis, Elsevier, vol. 100(C), pages 17-36.
    8. Pestieau, Pierre & Ponthiere, Gregory, 2016. "The public economics of long term care," CEPR Discussion Papers 11365, C.E.P.R. Discussion Papers.
    9. BELLELFLAMME, Paul & BLOCH , Francis & ,, 2013. "Dynamic protection of innovations through patents and trade secrets," CORE Discussion Papers 2013059, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    10. Pierre Pestieau & Grégory Ponthière, 2015. "Long-term care and births timing," Working Papers halshs-01131236, HAL.

    More about this item

    Keywords

    long term care; uncertain altruism; private insurance; public insurance; topping up; opting out;

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H5 - Public Economics - - National Government Expenditures and Related Policies

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