We study the design of long-term care (LTC) policy when children differ in their cost of providing informal care. Parents do not observe this cost, but they can commit to a "bequests rule" specifying a transfer conditional on the level of informal care. Care provided by high-cost children is distorted downwards in order to minimize the rent of low-cost ones. Social LTC insurance is designed to maximize a weighted sum of parents' and children's utility. The optimal uniform public LTC provision strikes a balance between insurance and children's utility. Under decreasing absolute risk aversion less than full insurance is provided to mitigate the distortion on informal care which reduces children's rents. A nonuniform policy conditioning LTC benefits on bequests provides full insurance even against the risk of having children with a high cost of providing care. Quite surprisingly the level of informal care induced by the optimal (uniform or nonuniform) policy always increases in the children's' welfare weight.
Long-term care; informal care; strategic bequests; asymmetric information;
- H2: Taxation, Subsidies, and Revenue
- H5: National Government Expenditures and Related Policies
- I13: Health Insurance, Public and Private
- J14: Economics of the Elderly • Economics of the Handicapped • Non-Labor Market Discrimination
TSE Working Paper, n° 17-839, septembre 2017