EconPapers    
Economics at your fingertips  
 

Behavioral Biases and Long Term Care Annuities: A Political Economy Approach

Philippe De Donder () and Marie-Louise Leroux ()

No 12-352, TSE Working Papers from Toulouse School of Economics (TSE)

Abstract: We develop a model where individuals all have the same probability of becoming dependent and vote over the social long term care insurance contribution rate before buying additional private insurance and saving. We study three types of behavioral biases, all having in common that agents under-weight their dependency probability when taking private decisions. Sophisticated procrastinators anticipate their mistake when voting, while optimistic and myopic agents have preferences that are consistent across choices. Optimists under-estimate their own probability of becoming dependent but know the average probability while myopics underestimate both. Sophisticated procrastinators attain the Örst-best allocation while myopics and optimists insure too little and save too much. Myopics and optimists more (resp., less) biased than the median are worse o§ (resp., better o§), at the majority voting equilibrium, when private insurance is available than when it is not.

New Economics Papers: this item is included in nep-cdm and nep-ias
Date: 2012-10, Revised 2013-02
References: View references in EconPapers View complete reference list from CitEc
Citations View citations in EconPapers (11) Track citations by RSS feed

Published in The B. E. Journal of Economic Analysis & Policy (Advances), vol. 14, n°2, juillet 2013, p. 551-575.

Downloads: (external link)
http://idei.fr/sites/default/files/medias/doc/by/d ... MLL-rev1-v6final.pdf Full text (application/pdf)

Related works:
Working Paper: Behavioral Biases and Long Term Care Annuities: A Political Economy Approach (2013) Downloads
Working Paper: Behavioral Biases and Long Term Care Annuities: A Political Economy Approach (2012) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:tse:wpaper:26383

Access Statistics for this paper

More papers in TSE Working Papers from Toulouse School of Economics (TSE) Contact information at EDIRC.
Bibliographic data for series maintained by ().

 
Page updated 2018-07-14
Handle: RePEc:tse:wpaper:26383