Asymmetric Information, Strategic Transfers, and the Design of Long-Term Care Policies

41 Pages Posted: 11 Nov 2020

See all articles by Chiara Canta

Chiara Canta

Toulouse Business School

Helmuth Cremer

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

Multiple version iconThere are 2 versions of this paper

Date Written: 2020

Abstract

We study the design of social long-term care (LTC) insurance when informal care is exchange-based. Parents do not observe their children's cost of providing care, which is continuously distributed over some interval. They choose a rule specifying transfers that are conditional on the level of informal care. Social LTC insurance is designed to maximize a weighted sum of parents' and children's utility. The optimal uniform public LTC insurance can fully cover the risk of dependence but parents continue to bear the risk of having children with a high cost of providing care. A nonlinear policy conditioning LTC benefits on transfers provides full insurance even for this risk. Informal care increases with the children's welfare weight. Our theoretical analysis is completed by numerical solutions based on a calibrated example. In the uniform case, public care should represent up to 40% of total care but its share decreases to about 30% as the weight of children increases. In the nonlinear case, public care increases with the children's cost of providing care at a faster rate when children's weight in social welfare is higher. It represents 100% of total care for the families with high-cost children.

Keywords: long-term care, informal care, strategic bequests, asymmetric information

JEL Classification: H200, H500

Suggested Citation

Canta, Chiara and Cremer, Helmuth, Asymmetric Information, Strategic Transfers, and the Design of Long-Term Care Policies (2020). Available at SSRN: https://ssrn.com/abstract=3728419 or http://dx.doi.org/10.2139/ssrn.3728419

Chiara Canta (Contact Author)

Toulouse Business School ( email )

20, bd Lascrosses
Toulouse, 31068
France

Helmuth Cremer

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

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