Long-term care expenditures and investment decisions under uncertainty

Pablo Garcia Sanchez, Luca Marchiori () and Olivier Pierrard

No 2023006, LIDAM Discussion Papers IRES from Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES)

Abstract: Long-term care (LTC) expenditures of the elderly are high in developed countries and will grow further with population aging. In addition, LTC costs are heterogeneous across individuals and unknown early in life. In this paper, we add uncertainty over the arrival and magnitude of future LTC costs into a life-cycle model with endogenous aging, and we analyze how this affects the optimal behavior of agents. We show that uncertainty boosts precautionary savings, lowers investment in preventive care, and weakens the effectiveness of subsidies to encourage prevention. Our results therefore suggest that uncertainty should not be ignored in models that study positive or normative aspects of health investment.

Keywords: health; long-term care costs; uncertainty; stochastic model (search for similar items in EconPapers)
JEL-codes: C60 D15 D81 I12 I18 (search for similar items in EconPapers)
Date: 2023-01
New Economics Papers: this item is included in nep-age, nep-cfn, nep-hea and nep-upt
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Related works:
Journal Article: Long-term care expenditures and investment decisions under uncertainty (2025)
Working Paper: Long-term care expenditures and investment decisions under uncertainty (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:ctl:louvir:2023006

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