60 Pages Posted: 15 Feb 2012 Last revised: 16 Apr 2013
Date Written: February 10, 2012
When siblings wish for the well-being of their elderly parents, the cost of caregiving and long-term commitment creates a free-rider problem among siblings. We estimate a sequential game to investigate externality and strategic interaction among adult siblings regarding their location choice relative to their elderly parents. Using the US Health and Retirement Survey, we find a positive externality and strategic interaction. The first-mover advantage of eldest children and the prisoner's dilemma are likely to exist but their magnitudes are negligible compared with inefficiency in joint utility. Inefficiency is large in a family with an educated, widowed mother and with educated siblings who are younger (relative to parents), married, and similar to each other. Had siblings fully internalized externality and jointly maximized utility sum in 2010, 17% more parents with multiple children would have had a child nearby. Public policies that reduce children's private costs may enhance social welfare.
Keywords: living arrangements, informal care, free-rider problem, sequential game, first-mover advantages
JEL Classification: D13, C72, D62
Suggested Citation: Suggested Citation
Johar, Meliyanni and Maruyama, Shiko, Externality and Strategic Interaction in the Location Choice of Siblings under Altruism toward Parents (February 10, 2012). UNSW Australian School of Business Research Paper No. 2012ECON15. Available at SSRN: https://ssrn.com/abstract=2003996 or http://dx.doi.org/10.2139/ssrn.2003996