Maybe 'Honor Thy Father and Thy Mother': Uncertain Family Aid and the Design of Social Long Term Care Insurance

41 Pages Posted: 9 Feb 2017

See all articles by Chiara Canta

Chiara Canta

Norwegian School of Economics (NHH) - Department of Economics

Helmuth Cremer

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

Firouz Gahvari

University of Illinois at Urbana-Champaign - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Multiple version iconThere are 3 versions of this paper

Date Written: December 2016

Abstract

We study the role and design of private and public insurance programs when informal care is uncertain. Children’s degree of altruism is randomly distributed over some interval. Social insurance helps parents who receive a low level of care, but it comes at the cost of crowding out informal care. Crowding out occurs both at the intensive and the extensive margins.

We consider three types of LTC policies:

(i) a topping up (TU) scheme providing a transfer which is non exclusive and can be supplemented;

(ii) an opting out (OO) scheme which is exclusive and cannot be topped up; and

(iii) a mixed policy combining these two schemes.

TU will involve crowding out both at the intensive and the extensive margins, whereas OO will crowd out informal care solely at the extensive margin. However, OO is not necessarily the dominant policy as it may exacerbate crowding out at the extensive margin. The distortions of both policies can be mitigated by using an appropriately designed mixed policy.

Keywords: long term care, uncertain altruism, private insurance, public insurance, topping up, opting out

JEL Classification: H200, H500

Suggested Citation

Canta, Chiara and Cremer, Helmuth and Gahvari, Firouz, Maybe 'Honor Thy Father and Thy Mother': Uncertain Family Aid and the Design of Social Long Term Care Insurance (December 2016). CESifo Working Paper Series No. 6290, Available at SSRN: https://ssrn.com/abstract=2914256

Chiara Canta

Norwegian School of Economics (NHH) - Department of Economics ( email )

Helleveien 30
N-5035 Bergen
Norway

Helmuth Cremer (Contact Author)

University of Toulouse (GREMAQ & IDEI) ( email )

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

Centre for Economic Policy Research (CEPR)

London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Firouz Gahvari

University of Illinois at Urbana-Champaign - Department of Economics ( email )

313 David Kinley Hall, 1407 West Gregory Drive
Urbana, IL 61801
United States

HOME PAGE: http://www.economics.illinois.edu/people/fgahvari

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschingerstr. 5
Munich, DE-81679
Germany

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