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Uncertain Altruism and Non-Linear Long-Term Care Policies

Author

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  • Canta, Chiara

    (Toulouse Business School)

  • Cremer, Helmuth

    (Toulouse School of Economics)

Abstract

We study the design of public long-term care (LTC) insurance when the altruism of informal caregivers is uncertain. We consider non-linear policies where the LTC benefit depends on the level of informal care, which is assumed to be observable while children's altruism is not. The traditional topping up and opting out policies are special cases of ours. Both total and informal care should increase with the children's level of altruism. This obtains under full and asymmetric information. Social LTC, on the other hand, may be non-monotonic. Under asymmetric information, social LTC is lower than its full information level for the lowest level of altruism, while it is distorted upward for the higher level of altruism. This is explained by the need to provide incentives to high-altruism children. The implementing contract is always such that social care increases with formal care.

Suggested Citation

  • Canta, Chiara & Cremer, Helmuth, 2018. "Uncertain Altruism and Non-Linear Long-Term Care Policies," IZA Discussion Papers 11619, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp11619
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    1. CREMER, Helmuth & PESTIEAU, Pierre & PONTHIERE, Grégory, 2012. "The economics of long-term care: a survey," LIDAM Discussion Papers CORE 2012030, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    2. 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).
    3. Jeffrey R. Brown & Amy Finkelstein, 2009. "The Private Market for Long‐Term Care Insurance in the United States: A Review of the Evidence," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 76(1), pages 5-29, March.
    4. Janet Currie & Firouz Gahvari, 2008. "Transfers in Cash and In-Kind: Theory Meets the Data," Journal of Economic Literature, American Economic Association, vol. 46(2), pages 333-383, June.
    5. Cremer, Helmuth & Gahvari, Firouz & Pestieau, Pierre, 2017. "Uncertain altruism and the provision of long term care," Journal of Public Economics, Elsevier, vol. 151(C), pages 12-24.
    6. Martin Karlsson & Tor Iversen & Henning Øien, 2012. "Scandinavian Long-Term Care Financing," Palgrave Macmillan Books, in: Joan Costa-Font & Christophe Courbage (ed.), Financing Long-Term Care in Europe, chapter 14, pages 254-278, Palgrave Macmillan.
    7. Blomquist, Soren & Christiansen, Vidar, 1998. "Topping Up or Opting Out? The Optimal Design of Public Provision Schemes," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(2), pages 399-411, May.
    8. Chiara Canta & Helmuth Cremer & Firouz Gahvari, 2020. "“Honor thy father and thy mother” or not: uncertain family aid and the design of social long term care insurance," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 55(4), pages 687-734, December.
    9. Jeffrey Brown & Amy Finkelstein, 2011. "Insuring Long Term Care In the US," NBER Working Papers 17451, National Bureau of Economic Research, Inc.
    10. Firouz Gahvari & Enlinson Mattos, 2007. "Conditional Cash Transfers, Public Provision of Private Goods, and Income Redistribution," American Economic Review, American Economic Association, vol. 97(1), pages 491-502, March.
    11. Blomquist, Suren & Christiansen, Vidar, 1995. " Public Provision of Private Goods as a Redistributive Device in an Optimum Income Tax Model," Scandinavian Journal of Economics, Wiley Blackwell, vol. 97(4), pages 547-567, December.
    12. Jeffrey R. Brown & Amy Finkelstein, 2011. "Insuring Long-Term Care in the United States," Journal of Economic Perspectives, American Economic Association, vol. 25(4), pages 119-142, Fall.
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    Cited by:

    1. Canta, Chiara & Cremer, Helmuth, 2019. "Long-term care policy with nonlinear strategic bequests," European Economic Review, Elsevier, vol. 119(C), pages 548-566.
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    3. Yakita, Akira, 2019. "Optimal long-term care policy in an intergenerational exchange setting," Research in Economics, Elsevier, vol. 73(4), pages 321-328.

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    More about this item

    Keywords

    long term care; uncertain altruism; private insurance; public insurance; topping up; opting out;
    All these keywords.

    JEL classification:

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

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