Bilateral Intergenerational Moral Hazard: Empirical Evidence from China

Xian Xu and Peter Zweifel ()
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Peter Zweifel: Department of Economics, University of Zurich, R&aauml;mistr. 71, Zurich 8006, Switzerland.

The Geneva Papers on Risk and Insurance - Issues and Practice, 2014, vol. 39, issue 4, 667 pages

Abstract: Bilateral intergenerational moral hazard (BIMH) has been considered as one of the most important reasons for the sluggish development of private long-term care (LTC) insurance. On the one hand, the parent, who relies on child effort to avoid admission to the nursing home, may abstain from purchasing LTC insurance. On the other hand, buying LTC insurance coverage serves to protect the available bequest from the cost of LTC, thus weakening child interest in providing informal care as a substitute for formal LTC. In this paper, we investigate whether BIMH with respect to LTC exists in China. A survey conducted in October 2012 in Shanghai suggests that respondents may well exhibit BIMH as predicted by Courbage and Zweifel. However, contrary to their predictions, neither a decrease in parental wealth nor a decrease in the child’s expected inheritance are found to trigger net BIMH effects. These findings have important implications both for insurance companies planning to develop LTC products and for Chinese public policy concerning LTC.

Date: 2014
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