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

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.

JEL codes

Replaces

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

Reference

Helmuth Cremer, and Chiara Canta, “Asymmetric information, strategic transfers and the design of long-term care policies”, Oxford Economic Papers, vol. 75, n. 1, January 2023, pp. 117–141.