Long-term care policy with nonlinear strategic bequests

Chiara Canta () and Helmuth Cremer

No 878, IDEI Working Papers from Institut d'Économie Industrielle (IDEI), Toulouse

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.

Keywords: Long-term care; informal care; strategic bequests; asymmetric information (search for similar items in EconPapers)
JEL-codes: H2 H5 I13 J14 (search for similar items in EconPapers)
Date: 2017-09
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Citations: View citations in EconPapers (8)

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Journal Article: Long-term care policy with nonlinear strategic bequests (2019)
Working Paper: Long-term care policy with nonlinear strategic bequests (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:ide:wpaper:31971

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