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Long-term care policy with nonlinear strategic bequests

Canta, Chiara and Cremer, Helmuth (2017) Long-term care policy with nonlinear strategic bequests. TSE Working Paper, n. 17-839, Toulouse

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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.

Item Type: Monograph (Working Paper)
Language: English
Date: September 2017
Place of Publication: Toulouse
Uncontrolled Keywords: Long-term care, informal care, strategic bequests, asymmetric information
JEL Classification: H2 - Taxation, Subsidies, and Revenue
H5 - National Government Expenditures and Related Policies
J14 - Economics of the Elderly; Economics of the Handicapped
Divisions: TSE-R (Toulouse)
Institution: Université Toulouse 1 Capitole
Site: UT1
Date Deposited: 16 Apr 2018 15:28
Last Modified: 10 Oct 2019 12:55
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