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Long-term care and lazy rotten kids

  • Cremer, Helmuth
  • Roeder, Kerstin

This paper studies the determination of informal long-term care (family aid) to de- pendent elderly in a worst case scenario concerning the “harmony”of family relations. Children are purely sel sh, and neither side can make credible commitments (which rules out e¢ cient bargaining). The model is based on Becker’s “rotten kid” speci ca- tion except that it explicitly accounts for the sequence of decisions. In Becker’s world, with a single good, this setting yields e¢ ciency. We show that when family aid (and long-term care services in general) are introduced the outcome is likely to be ine¢ cient. Still, the rotten kid mechanism is at work and ensures that a positive level of aid is provided as long as the bequest motive is operative. We identify the ine¢ ciencies by comparing the laissez-faire (subgame perfect) equilibrium to the rst-best allocation. We initially assume that families are identical ex ante. However, the case where dyn- asties di¤er in wealth is also considered. We study how the provision of long-term care (LTC) can be improved by public policies under various informational assumptions. In- terestingly, crowding out of private aid by public LTC is not a problem in this setting. With an operative bequest motive, public LTC will have no impact on private aid. More amazingly still, when the bequest motive is (initially) not operative, public insurance may even enhance the provision of informal aid.

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Paper provided by Institut d'Économie Industrielle (IDEI), Toulouse in its series IDEI Working Papers with number 789.

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Date of creation: Aug 2013
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Handle: RePEc:ide:wpaper:27439
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  1. 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).
  2. Canta Chiara & Pestieau Pierre, 2013. "Long-Term Care Insurance and Family Norms," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 14(2), pages 401-428, April.
  3. Siciliani Luigi, 2013. "The Economics of Long-Term Care," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 14(2), pages 343-375, August.
  4. Wolff, Francois-Charles, 2006. "Microeconomic models of family transfers," Handbook on the Economics of Giving, Reciprocity and Altruism, Elsevier.
  5. Bruce, Neil & Waldman, Michael, 1990. "The Rotten-Kid Theorem Meets the Samaritan's Dilemma," The Quarterly Journal of Economics, MIT Press, vol. 105(1), pages 155-65, February.
  6. Edward C. Norton & Lauren Hersch Nicholas & Sean Sheng-Hsiu Huang, 2013. "Informal Care and Inter-vivos Transfers: Results from the National Longitudinal Survey of Mature Women," NBER Working Papers 18948, National Bureau of Economic Research, Inc.
  7. Bisin, Alberto & Verdier, Thierry, 2001. "The Economics of Cultural Transmission and the Dynamics of Preferences," Journal of Economic Theory, Elsevier, vol. 97(2), pages 298-319, April.
  8. repec:dgr:uvatin:20070032 is not listed on IDEAS
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