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

Canta, Chiara and Cremer, Helmuth (2020) Asymmetric information, strategic transfers, and the design of long-term care policies. TSE Working Paper, n. 20-1156, Toulouse

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We study the design of social long-term care (LTC) insurance when informal care is
exchange-based. Parents do not observe their children's cost of providing care, which
is continuously distributed over some interval. They choose a rule specifying transfers
that are conditional on the level of informal care. Social LTC insurance is designed
to maximize a weighted sum of parents' and children's utility. The optimal uniform
public LTC insurance can fully cover the risk of dependence but parents continue to
bear the risk of having children with a high cost of providing care. A nonlinear policy
conditioning LTC benets on transfers provides full insurance even for this risk. Informal
care increases with the children's welfare weight.
Our theoretical analysis is completed by numerical solutions based on a calibrated
example. In the uniform case, 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
the families with high-cost children.

Item Type: Monograph (Working Paper)
Language: English
Date: November 2020
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
Divisions: TSE-R (Toulouse)
Institution: Université Toulouse 1 Capitole
Site: UT1
Date Deposited: 26 Nov 2020 14:52
Last Modified: 26 Nov 2020 14:52
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