Adverse Selection in Elderly Care

Amedeo Fossati () and Marcello Montefiori
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Amedeo Fossati: University of Genoa, Italy

No 7/2011, DEP - series of economic working papers from University of Genoa, Research Doctorate in Public Economics

Abstract: This paper provides a theoretical model to analyse public funding of family elderly care when two severity type are present (the high and the low), under asymmetry of information and increasing costs. The social planner can redistribute between households, but because of incomplete information he is prevented from observing the type of household. The welfare optimum is characterized both under full and asymmetric information. Under complete information it turns out that the transfer has to be set in such a way to induce equality in the marginal utility of income. The direction of the transfer is no longer clear-cut (both under complete and asymmetric information). Specifically it cannot be ruled out that the transfer flows from the high severity / high cost type to the low severity /low cost type, where intuitively one would expect the opposite.

Keywords: asymmetric information; adverse selection; elderly care; redistribution (search for similar items in EconPapers)
JEL-codes: D82 I18 (search for similar items in EconPapers)
Date: 2011-11
New Economics Papers: this item is included in nep-cta
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Citations: View citations in EconPapers (1)

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