Asymmetric information, strategic transfers, and the design of long-term care policies

Author:

Canta Chiara1,Cremer Helmuth2

Affiliation:

1. Department of Economics and Finance, TBS Business School , Toulouse 31068, France

2. Toulouse School of Economics, University of Toulouse Capitole , Esplanade de l’Université, Toulouse 31015, France

Abstract

Abstract We study the optimal design of social long-term care (LTC) insurance when the utility of informal caregivers is taken into account. Informal care is exchange-based. Children’s cost of providing care is continuously distributed over some interval and is not observable. Parents choose a rule specifying transfers conditional on the level of informal care. We study first uniform provision of LTC and then a nonlinear policy depending on family transfers. In both cases, informal care increases with the children’s welfare weight. Our theoretical analysis is completed by calibrated numerical solutions. Uniform public care should represent up to 40% of total care but its share decreases to about 30% as the weight of children increases. In the nonlinear case, public care increases with the children’s cost of providing care at a faster rate when children’s weight in social welfare is higher. It represents 100% of total care for families with high-cost children.

Funder

Chaire ‘Marché des risques et creation de valeur’ of the Fondation du Risque/SCOR

Agence Nationale de la Recherche

Investissements d’Avenir program to H.C.

Publisher

Oxford University Press (OUP)

Subject

Economics and Econometrics

Reference40 articles.

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