Long-term care policy with nonlinear strategic bequests

Abstract

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.

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JEL codes

Replaced by

Chiara Canta, and Helmuth Cremer, “Long term care policy with nonlinear strategic bequests”, European Economic Review, vol. 119, October 2019, pp. 548–566.

Reference

Chiara Canta, and Helmuth Cremer, “Long-term care policy with nonlinear strategic bequests”, TSE Working Paper, n. 17-839, September 2017.