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Uncertain altruism and the provision of long term care

Author

Listed:
  • CREMER, Helmuth

    (Toulouse School of Economics, France)

  • gahvari, Firouz

    (Department of Economics, University of Illinois, USA)

  • PESTIEAU, Pierre

    (CREPP, Université de Liège; Université catholique de Louvain, CORE, Belgium; Toulouse School of Economics, France)

Abstract
This paper studies the role of private and public long term care (LTC) insurance programs in a world in which family assistance is uncertain. Benefits are paid in case of disability but cannot be conditioned (directly), due to moral hazard problems, on family aid. Under a topping up scheme, when the probability of altruism is high, there is no need for insurance. At lower probabilities, insurance is required, thought not full insurance. This can be provided either privately or publicly if insurance premiums are fair, and publicly otherwise. Moreover, the amount of LTC insurance varies negatively with the probability of altruism. With an opting out scheme, there will be three possible equilibria depending on the children’s degree of altruism being “low,” “moderate,” or “very high”. These imply: full LTC insurance with no aid from children, less than full insurance just enough to induce aid, and full insurance with aid. Fair private insurance markets can support the first equilibrium, but not the other two equilibria. Only a public opting-out scheme can attain them by creating incentives for self-targeting and ensuring that only dependent parents who are not helped by their children seek help from the government.

Suggested Citation

  • CREMER, Helmuth & gahvari, Firouz & PESTIEAU, Pierre, 2013. "Uncertain altruism and the provision of long term care," LIDAM Discussion Papers CORE 2013047, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvco:2013047
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    long term care; uncertain altruism; private insurance; public insurance; topping up; opting out;
    All these keywords.

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H5 - Public Economics - - National Government Expenditures and Related Policies

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