Intergenerational Household Formation, Female Labor Supply and Informal Caregiving: A Bargaining Approach

Children's provision of in-kind services to their elderly parents (informal caregiving) represents an important form of economic transfers to the elderly. In this paper, we develop and estimate a joint model of informal caregiving and labor force participation decisions of adult daughters who have a frail elderly parent in a broader framework of intergenerational household formation. Parent and daughter agree to a Nash bargaining rule as the solution to the household formation and intrahousehold decision making process. However, rather than severed relationships, the threat point is given by a noncooperative equilibrium defined in terms of voluntary contributions toward a public good, the parental "well-being." Maximum likelihood parameter estimates derived from the simultaneous, multiequation, endogenous switching model are generally consistent with expectations. Our results indicate that competing demands on daughters' time reduce both coresidence and informal caregiving. We also find that intergenerational coresidence is an important mode of assistance to elderly persons. A simulation based on the estimated parameters suggests that public programs designed to meet the long-term care needs of elderly persons by subsidizing formal home care services may have substantial effects on intergenerational living and care arrangement decisions.