Long-Term Care and Lazy Rotten Kids

34 Pages Posted: 4 Sep 2013

See all articles by Helmuth Cremer

Helmuth Cremer

University of Toulouse (GREMAQ & IDEI); Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute)

Kerstin Roeder

Ludwig Maximilian University of Munich (LMU); University of Augsburg

Multiple version iconThere are 2 versions of this paper

Date Written: August 30, 2013


This paper studies the determination of informal long-term care (family aid) to dependent elderly in a worst case scenario concerning the “harmony” of family relations. Children are purely selfish, and neither side can make credible commitments (which rules out efficient bargaining). The model is based on Becker’s “rotten kid” specification except that it explicitly accounts for the sequence of decisions. In Becker’s world, with a single good, this setting yields efficiency. We show that when family aid (and long-term care services in general) are introduced the outcome is likely to be inefficient. Still, the rotten kid mechanism is at work and ensures that a positive level of aid is provided as long as the bequest motive is operative. We identify the inefficiencies by comparing the laissez-faire (subgame perfect) equilibrium to the first-best allocation. We initially assume that families are identical ex ante. However, the case where dynasties differ in wealth is also considered. We study how the provision of long-term care (LTC) can be improved by public policies under various informational assumptions. Interestingly, crowding out of private aid by public LTC is not a problem in this setting. With an operative bequest motive, public LTC will have no impact on private aid. More amazingly still, when the bequest motive is (initially) not operative, public insurance may even enhance the provision of informal aid.

Keywords: rotten kids, long-term care, family aid, optimal taxation

JEL Classification: D130, H210, I130

Suggested Citation

Cremer, Helmuth and Roeder, Kerstin, Long-Term Care and Lazy Rotten Kids (August 30, 2013). CESifo Working Paper Series No. 4372, Available at SSRN: https://ssrn.com/abstract=2319841 or http://dx.doi.org/10.2139/ssrn.2319841

Helmuth Cremer

University of Toulouse (GREMAQ & IDEI) ( email )

Toulouse, 31000
+33 1 6112 8606 (Phone)
+33 1 6112 8637 (Fax)

Centre for Economic Policy Research (CEPR)

United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679

Kerstin Roeder (Contact Author)

Ludwig Maximilian University of Munich (LMU) ( email )

Geschwister-Scholl-Platz 1
Munich, DE Bavaria 80539

University of Augsburg ( email )

Universitätsstr. 2
Augsburg, 86159

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