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Long-term care policy with nonlinear strategic bequests

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  • Canta, Chiara
  • Cremer, Helmuth

Abstract

We study the design of long-term care (LTC) policy when children differ in their cost of providing informal care. Parents do not observe this cost, but they can commit to a "bequests rule" specifying a transfer conditional on the level of informal care. Care provided by high-cost children is distorted downwards in order to minimize the rent of low-cost ones. Social LTC insurance is designed to maximize a weighted sum of parents' and children's utility. The optimal uniform public LTC provision strikes a balance between insurance and children's utility. Under decreasing absolute risk aversion less than full insurance is provided to mitigate the distortion on informal care which reduces children's rents. A nonuniform policy conditioning LTC benefits on bequests provides full insurance even against the risk of having children with a high cost of providing care. Quite surprisingly the level of informal care induced by the optimal (uniform or nonuniform) policy always increases in the children's' welfare weight.

Suggested Citation

  • Canta, Chiara & Cremer, Helmuth, 2017. "Long-term care policy with nonlinear strategic bequests," TSE Working Papers 17-839, Toulouse School of Economics (TSE).
  • Handle: RePEc:tse:wpaper:31970
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    Cited by:

    1. Barigozzi, Francesca & Cremer, Helmuth & Roeder, Kerstin, 2017. "Caregivers in the family: daughters, sons and social norms," IDEI Working Papers 877, Institut d'Économie Industrielle (IDEI), Toulouse.
    2. repec:bla:annpce:v:89:y:2018:i:1:p:49-63 is not listed on IDEAS

    More about this item

    Keywords

    Long-term care; informal care; strategic bequests; asymmetric information;

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H5 - Public Economics - - National Government Expenditures and Related Policies
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination

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