Long-Term Care and Lazy Rotten Kids
This paper studies the determination of informal long-term care (family aid) to dependent elderly in a worst case scenario concerning the "harmony" of family relations. Children are purely selfish, and neither side can make credible commitments (which rules out efficient bargaining). The model is based on Becker's "rotten kid" specification except that it explicitly accounts for the sequence of decisions. In Becker's world, with a single good, this setting yields efficiency. We show that when family aid (and long-term care services in general) are introduced, the outcome is likely to be inefficient. 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 inefficiencies by comparing the laissez-faire (subgame perfect) equilibrium to the first-best allocation. We initially assume that families are identical ex ante. However, the case where dynasties differ 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. Interestingly, 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.
|Date of creation:||Aug 2013|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: +49 228 3894 223
Fax: +49 228 3894 180
Web page: http://www.iza.org
|Order Information:|| Postal: IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Neil Bruce & Michael Waldman, 1986.
"The Rotten-Kid Theorem Meets the Samaritan's Dilemma,"
650, Queen's University, Department of Economics.
- 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.
- Neil Bruce & Michael Waldman, 1986. "The Rotten-Kid Theorem Meets the Samaritan's Dilemma," UCLA Economics Working Papers 402, UCLA Department of Economics.
- Cox, Donald, 1987. "Motives for Private Income Transfers," Journal of Political Economy, University of Chicago Press, vol. 95(3), pages 508-46, June.
- 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.
- Bisin, A. & Verdier, T., 1997. "The Economics of Cultural Transmission and the Dynamics of Preferences," DELTA Working Papers 97-03, DELTA (Ecole normale supérieure).
- 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.
- Theodore C. Bergstrom, .
"Economics in a Family Way,"
ELSE working papers
018, ESRC Centre on Economics Learning and Social Evolution.
- Bergstrom, T., 1995. "Economics of a Family Way," Papers 95-07, Michigan - Center for Research on Economic & Social Theory.
- Ted Bergstrom, 1995. "Economic in a Family Way," Papers _028, University of Michigan, Department of Economics.
- Theodore C. Bergstrom, 1995. "Economics in a Family Way," Labor and Demography 9507002, EconWPA, revised 06 Feb 1996.
- 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.
- Norton Edward C. & Nicholas Lauren H. & Huang Sean Sheng-Hsiu, 2013. "Informal Care and Inter-vivos Transfers: Results from the National Longitudinal Survey of Mature Women," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 14(2), pages 377-400, May.
- 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).
- Mirrlees, James A, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Wiley Blackwell, vol. 38(114), pages 175-208, April.
- Wolff, Francois-Charles, 2006. "Microeconomic models of family transfers," Handbook on the Economics of Giving, Reciprocity and Altruism, Elsevier.
- 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.
- Hirshleifer, Jack, 1977. "Shakespeare vs. Becker on Altruism: The Importance of Having the Last Word," Journal of Economic Literature, American Economic Association, vol. 15(2), pages 500-502, June.
- Jeffrey R. Brown & Amy Finkelstein, 2007.
"Why is the market for long-term care insurance so small?,"
in: Trans-Atlantic Public Economics Seminar (TAPES), Public Policy and Retirement, pages 1967-1991
National Bureau of Economic Research, Inc.
- Brown, Jeffrey R. & Finkelstein, Amy, 2007. "Why is the market for long-term care insurance so small?," Journal of Public Economics, Elsevier, vol. 91(10), pages 1967-1991, November.
When requesting a correction, please mention this item's handle: RePEc:iza:izadps:dp7565. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mark Fallak)
If references are entirely missing, you can add them using this form.