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Long-term care policy, myopia and redistribution

  • Cremer, Helmuth
  • Roeder, Kerstin

This paper examines whether myopia (misperception of the old age dependency risk) and private insurance market loading costs can justify public long-term care (LTC) provision and/or the subsidization of private insurance. Individuals differ in dependency risk, productivity and degree of risk misperception. The former two are positively correlated (because of the longevity factor) and social insurance tends to be regressive. A first-best solution requires subsidization of private insurance and/or public provision of the appropriate level of LTC. The support for these instruments is less strong in a second-best setting, as there may be a conflict between the correction for myopia and redistribution. Public LTC provision is never optimal when private insurance markets are fair (irrespective of the proportion of myopic individuals and their degree of misperception). Under loading costs, the solution may require a combination of private and public insurance or even rely solely on public provision.

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Paper provided by University of Munich, Department of Economics in its series Munich Reprints in Economics with number 20065.

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Date of creation: 2013
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Publication status: Published in Journal of Public Economics 108(2013): pp. 33-43
Handle: RePEc:lmu:muenar:20065
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  1. Jacobs, Bas, 2011. "The Marginal Cost of Public Funds is One," Working Paper Series, Center for Fiscal Studies 2011:7, Uppsala University, Department of Economics.
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  5. Helmuth Cremer & Pierre Pestieau, 2014. "Social long-term care insurance and redistribution," International Tax and Public Finance, Springer, vol. 21(6), pages 955-974, December.
  6. Cremer, Helmuth & Gahvari, Firouz & Ladoux, Norbert, 1998. "Externalities and optimal taxation," Journal of Public Economics, Elsevier, vol. 70(3), pages 343-364, December.
  7. JOUSTEN, Alain & LIPSZYC, Barbara & MARCHAND, Maurice & PESTIEAU, Pierre, 2003. "Long-term care in insurance and optimal taxation for altruistic children," CORE Discussion Papers 2003063, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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  11. Jean-Charles Rochet, 1991. "Incentives, Redistribution and Social Insurance," The Geneva Risk and Insurance Review, Palgrave Macmillan, vol. 16(2), pages 143-165, December.
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  13. Julian P. Cristia, 2009. "Rising Mortality and Life Expectancy Differentials by Lifetime Earnings in the United States," IDB Publications (Working Papers) 6756, Inter-American Development Bank.
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  15. JOUSTEN, Alain & LIPSZYC, Barbara & MARCHAND, Maurice & PESTIEAU, Pierre, . "Long-term care insurance and optimal taxation for altruistic children," CORE Discussion Papers RP 1753, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  16. repec:adr:anecst:y:2006:i:83-84:p:06 is not listed on IDEAS
  17. Gerdtham, Ulf-G. & Johannesson, Magnus, 2000. "Income-related inequality in life-years and quality-adjusted life-years," Journal of Health Economics, Elsevier, vol. 19(6), pages 1007-1026, November.
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  20. Johannes Spinnewijn, 2012. "Heterogeneity, Demand for Insurance and Adverse Selection," CEP Discussion Papers dp1142, Centre for Economic Performance, LSE.
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  22. W. Kip Viscusi, 1994. "Mortality Effects of Regulatory Costs and Policy Evaluation Criteria," RAND Journal of Economics, The RAND Corporation, vol. 25(1), pages 94-109, Spring.
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  26. repec:esx:essedp:643 is not listed on IDEAS
  27. PESTIEAU, Pierre & PONTHIERE, Grégory, 2010. "Long term care insurance puzzle," CORE Discussion Papers 2010023, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  28. Pauly, Mark V, 1990. "The Rational Nonpurchase of Long-term-Care Insurance," Journal of Political Economy, University of Chicago Press, vol. 98(1), pages 153-68, February.
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