nep-age New Economics Papers
on Economics of Ageing
Issue of 2018‒07‒23
nineteen papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. Labour Market Decisions of the Self-Employed in the Netherlands at the Statutory Retirement Age By NAGORE GARCIA Amparo; ROSSI Cristina; VAN SOEST Arthur
  2. Deferring Receipt of Public Pension Benefits: A Tool for Flexibility By Antoine Genest-Grégoire; René Beaudry; Luc Godbout; Bernard Morency
  3. Who pays for the consumption of young and old? By Hippolyte D'Albis; Carole Bonnet; Xavier Chojnicki; Najat El Mekkaouide Freitas; Angela Greulich; Jérôme Hubert; Julien Navaux
  4. Actuarial accounting for a notional defined contribution scheme combining retirement and longterm care benefits By Carlos Vidal-Meliá; Manuel Ventura-Marco; Juan Manuel Pérez-Salamero González
  5. A Theory of Reverse Retirement By Grégory Ponthière
  6. Closing Down the Shop: Optimal Health and Wealth Dynamics Near the End of Life By Julien Hugonnier; Florian Pelgrin; Pascal St-Amour
  7. Are rising house prices really good for your brain? House value and cognitive functioning among older Europeans By Bénédicte H. Apouey; Isabelle Chort
  8. An empirical investigation on the drivers of income redistribution across OECD countries By Orsetta Causa; Anna Vindics; Oguzhan Akgun
  9. The generation gap in direct democracy By Ahlfeldt, Gabriel M.; Maennig, Wolfgang; Mueller, Steffen Q.
  10. Is the Italian NDC pension system really sustainable?Parameters’ design and consistency. By Carlo Mazzaferro
  11. Education, Intelligence and Diseases in Old Age By Niccodemi, Gianmaria; Bijwaard, Govert
  12. The Challenge for Regional Development By Geoffrey J.D. Hewings
  13. Measuring the financial literacy of the adult population: the experience of Banca d’Italia By Antonietta di Salvatore; Francesco Franceschi; Andrea Neri; Francesca Zanichelli
  14. Retirement concerns and planning of cooperative members: A study in the Dutch healthcare sector By George APOSTOLAKIS; Gert VAN DIJK
  15. Retirement and Unexpected Health Shocks By Bénédicte H. Apouey; Cahit Guven; Claudia Senik
  16. Systematic Review on Handles of Canes for the Elderly?s Daily Ambulation By Yi Vonn Wong; Sung Ho Yang
  17. Les attentes en termes de services pour les seniors : Le rôle de l’altruisme et de l’anticipation de la dépendance By Bénédicte H. Apouey
  18. The value of extending life at its end: Health care allocation in the presence of learning spillovers By Hintermann, Beat; Minke, Matthias
  19. Uncertain altruism and non-linear long-term care policies By Canta, Chiara; Cremer, Helmuth

  1. By: NAGORE GARCIA Amparo; ROSSI Cristina; VAN SOEST Arthur
    Abstract: We investigate retirement decisions of the self-employed in the Netherlands using administrative data. We focus on the time period around which individuals reach the statutory retirement age (SRA, 65 years in most cases). After the statutory retirement age, each Dutch resident receives the Old Age State Pension annuity (AOW), providing an income at the subsistence level. Both the timing and the magnitude of this state pension are well known in advance. According to a standard leisure/consumption trade-off life cycle model, receiving AOW should therefore have no impact on labour supply choices. While employees often face the demand side restriction of mandatory retirement, this does not apply to the self-employed. We investigate whether retirement and earnings of the self-employed change at the SRA and whether any such changes vary with, e.g., the level of financial wealth. We find a peak in retirement when self-employed reach the SRA. The evidence suggests that the benchmark of retiring at 65 is acting as a driver, due to behavioural features like anchoring or a social norm.
    Keywords: Life cycle model; retirement decision; reference point; social norm
    JEL: L26
    Date: 2018–07
  2. By: Antoine Genest-Grégoire (Université de Sherbrooke); René Beaudry (Normandin Beaudry); Luc Godbout (Université de Sherbrooke); Bernard Morency (Université de Sherbrooke)
    Abstract: Retirement savers would benefit from greater flexibility and security with a longer Canada and Québec Pension Plans (C/QPP) deferral period, according to a new report by the C.D. Howe Institute. In “Deferring Receipt of Public Pension Benefits: A Tool for Flexibility” authors Antoine Genest-Grégoire, Luc Godbout, René Beaudry, and Bernard Morency show that deferring receipt of public pension benefits makes retirement planning cheaper for Canadians who use capital accumulation plans such as RRSPs and defined contribution plans.
    Keywords: Retirement Saving and Income; Adequacy of Retirement Savings;Individual Retirement Savings;Public Pension Plans;Seniors' Benefits
    JEL: H55
  3. By: Hippolyte D'Albis (PSE - Paris School of Economics, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique); Carole Bonnet (INED - Institut national d'études démographiques); Xavier Chojnicki (LEM - Lille - Economie et Management - CNRS - Centre National de la Recherche Scientifique - UCL - Université catholique de Lille - Université de Lille); Najat El Mekkaouide Freitas (LEDa - Laboratoire d'Economie de Dauphine - Université Paris-Dauphine); Angela Greulich (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, INED - Institut national d'études démographiques); Jérôme Hubert (LEM - Lille - Economie et Management - CNRS - Centre National de la Recherche Scientifique - UCL - Université catholique de Lille - Université de Lille); Julien Navaux (University of Ottawa [Ottawa])
    Abstract: This article provides a comprehensive overview of how the funding of consumption at different ages is shared between the State, the individual and the family. By applying the National Transfer Accounts method for France, we developed a unique database to analyze how the funding of consumption is secured at each age, how its structure has changed over time, and how the consumption is financed in France compared to that of a set of other developed countries. We find that the elderly in France finance themselves increasingly by their own means, even though public funding of this age group remains significant in France in comparison to other countries. Conversely, the young rely more and more on the State to finance their consumption. Within our sample, France is the country where the young benefited most from public transfers.
    Keywords: Generational Economy,National Transfer Accounts,Inter- Generational Equity,Private and Public Consumption
    Date: 2018–05
  4. By: Carlos Vidal-Meliá (Department of Financial Economics and Actuarial Science, University of Valencia (Spain), and research affiliation with the Instituto Complutense de Análisis Económico (ICAE), Complutense University of Madrid (Spain), and the Centre of Excellence in Population Ageing Research (CEPAR), UNSW (Australia).); Manuel Ventura-Marco (Department of Financial Economics and Actuarial Science, University of Valencia, Avenida de los Naranjos s.n., 46022 Valencia. (Spain).); Juan Manuel Pérez-Salamero González (Department of Financial Economics and Actuarial Science, University of Valencia, Avenida de los Naranjos s.n., 46022 Valencia. (Spain).)
    Abstract: This paper develops a social insurance accounting model for a notional defined contribution (NDC) scheme combining retirement and long-term care (LTC) contingencies. The procedure relies on standard double-entry bookkeeping and enables us to compile a “Swedish” type actuarial balance sheet (ABS) following a framework equivalent to an open group approach. This methodology is suitable for reporting the system’s solvency status and can show periodical changes in the system’s financial position by means of an income statement. The information underpinning the actuarial valuation is based on events and transactions that are verifiable at the valuation date, without considering expected future trends. The paper also contains an illustrative example to make it easier for policymakers to understand the main advantages and difficulties of our proposal. The policy conclusions stress the need to properly report social insurance benefits to enhance transparency and sustainability and to improve decision-making because it is in the public interest to do so.
    Keywords: Life Care Annuities; Long-Term Care Insurance; Notional Defined Contribution; Pay-as-you-go; Pension Accounting; Retirement; Social Security; Sustainability.
    JEL: G22 H55 I13 J14 J26
    Date: 2018–05
  5. By: Grégory Ponthière (PSE - Paris School of Economics, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique, ERUDITE - Equipe de Recherche sur l’Utilisation des Données Individuelles en lien avec la Théorie Economique - UPEM - Université Paris-Est Marne-la-Vallée - UPEC UP12 - Université Paris-Est Créteil Val-de-Marne - Paris 12)
    Abstract: The retirement system is usually regarded as giving a fair reward for a long life of labor. However, the fairness of that system can be questioned, on the grounds that only workers who have a su¢ ciently long life benefit from that reward, but not workers who die prematurely. In order to reexamine the fairness of retirement systems under unequal lifetime, this paper compares standard retirement (i.e. individuals work before being retired) with - purely hypothetical - reverse retirement (i.e. individuals are retired before working). We first show that, whereas reverse retirement cannot be a social optimum under the utilitarian criterion (unlike standard retirement), reverse retirement can be optimal under the ex post egalitarian criterion (giving priority to the worst-o¤ in realized terms). From an ex post egalitarian perspective, reverse retirement dominates standard retirement in economies with high life expectancy and a flat age-productivity profile, whereas the opposite holds in less developed economies.
    Keywords: mortality,fairness,retirement,life cycle
    Date: 2018–05
  6. By: Julien Hugonnier (Ecole Polytechnique Fédérale de Lausanne and Swiss Finance Institute); Florian Pelgrin (EDHEC Business School); Pascal St-Amour (University of Lausanne and Swiss Finance Institute)
    Abstract: Near the end of life, health declines, mortality risk increases and curative is replaced by uninsured long-term care, accelerating the fall in wealth. Whereas standard explanations emphasize inevitable aging processes, we propose a com- plementary closing down the shop justification where agents’ decisions affect their health and the timing of death. Despite preferring to live, individuals optimally deplete their health and wealth towards levels associated with high death risk and indifference between life and death. Reinstating exogenous aging processes reinforces the relevance of closing down. Using HRS data for elders, a structural estimation of the closed-form decisions identifies and tests conditions for these strategies to be optimal and confirm their economic relevance. We also discuss why policy intervention to reduce the incidence of closing down, although feasible, is not warranted.
    Keywords: End of life; Life cycle; Dis-savings; Endogenous mortality risk; Unmet medical needs; Right to refuse treatment
    JEL: I12
    Date: 2017–03
  7. By: Bénédicte H. Apouey (PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique); Isabelle Chort (UPPA - Université de Pau et des Pays de l'Adour)
    Abstract: This study examines how house prices influence cognitive functioning for individuals aged 50+ in Europe. Using data from the Survey of Health, Ageing and Retirement (SHARE) between 2004 and 2015, we compute the median house price for each region-year, using individual self-reported house values. Cognitive scores capture either fluid intelligence (numeracy, memory) or a mix of fluid and crystallized intelligences (verbal fluency). Compared with the previous literature, we allow housing market fluctuations to have different effects during episodes of price increases and decreases, and we study owners with a mortgage, owners without a mortgage, and tenants separately. Findings indicate that house price booms do not systematically improve cognitive health outcomes: for outright owners and tenants, a rise in prices correlates with a decrease in fluid intelligence. For outright owners, this result is partly explained by increased alcohol consumption, and is also related to stronger feelings of guilt and irritability, consistent with aversion to advantageous inequality. Findings also show asymmetry in the effects of price booms and busts: indeed, for mortgaged owners, both price increase and decrease episodes have a positive impact on cognitive outcomes. We argue that during the crisis the beneficial impact of price busts may have been driven by the decline in interest rates, which reduced the debt burden of households with a variable rate mortgage.
    Keywords: House prices,Wealth,Cognitive functioning,Health,Older Europeans,Europe,SHARE
    Date: 2018–06
  8. By: Orsetta Causa; Anna Vindics; Oguzhan Akgun
    Abstract: This paper provides an empirical investigation on the drivers of tax and transfer income redistribution to working-age households across the OECD over the last two decades, in a context where it has been declining in the vast majority of countries. The analytical approach is based on a reduced-form model of income redistribution which is estimated through cross-country-time series regressions. The baseline model builds on the political economy literature of income redistribution and includes a set of non-policy drivers such as labour market and socio-demographic conditions as well as measures of globalisation and technological change. The baseline model is augmented with major direct policy drivers of income redistribution covering tax revenue and social spending as well as a selection of tax and transfer policy parameters. Changes in the size of the tax and transfer systems likely to have contributed to the decline in income redistribution include the decline in social spending on cash support for working-age population and the diminishing role of personal income taxes in reducing inequality under the effect of increasing trade openness. Changes in specific tax and transfer policy instruments and parameters likely to have contributed to the decline in income redistribution include a flattening of the tax schedule in the upper-part of the wage distribution, a decline in the generosity and duration of unemployment-related transfers, including cuts to social assistance, and pension and early retirement reforms to encourage longer working life.
    Keywords: income inequality, progressivity, redistribution, taxes, transfers
    JEL: D31 H23 H53 I38
    Date: 2018–07–18
  9. By: Ahlfeldt, Gabriel M.; Maennig, Wolfgang; Mueller, Steffen Q.
    Abstract: We provide the first systematic documentation and analysis of a generation gap in direct democracy outcomes across a wide range of topics using postelection survey data covering more than 300 Swiss referenda and four decades. We find that older voters are more likely to resist reform projects, particularly those that are associated with the political left. We separate age and cohort effects without imposing functional form constraints using a panel rank regression approach. The aging effect on political orientation is robust for controlling for arbitrary cohort effects and appears to be driven by expected utility maximization and not by habituation-induced status-quo bias. Our results suggest that population aging raises the hurdle for investment-like reform projects with positive net present values, long-run benefits and short-run costs in direct polls.
    Keywords: age; cohort; direct democracy; generation gap; status quo; referendum; reform; utility
    JEL: D7 H3
    Date: 2018–06–01
  10. By: Carlo Mazzaferro
    Abstract: Using a multiperiod OLG model we study the theoretical financial, adequacy and distributive characteristics of various NDC systems. The main aim of the paper is to compare the Italian current setting of policy parameters with choices made in other countries that adopted a similar philosophy for the accrual of pension benefits. All countries studied present solutions that are inferior both from a financial point of view and from a distributive one, with respect to a “well designed” system. Among them the Italian NDC system is the one that produces the highest financial imbalance in the long run. Moreover it also relinquished to use the indexation rate of pension benefits, one of the policy parameters that can be used to adjust the pension expenditure dynamics and to correct intergenerational inequities. Looking at situation that are out of the steady state solution of the model it appears that an NDC system, as all PAYGO arrangements, produces complex path of expenditure, where even simple and temporary demographic and economic shocks request decades in order to be absorbed. All these results call for a quick intervention in order to make the system more transparent and more suited to face the real evolution of macro variables, without compromising its financial short and medium term position.
    Keywords: NDC pension system, PAYGO arrangement, sustainability, consistency
    JEL: H55 H68
    Date: 2018–06
  11. By: Niccodemi, Gianmaria (University of Groningen); Bijwaard, Govert (NIDI - Netherlands Interdisciplinary Demographic Institute)
    Abstract: Several studies have found a positive association between education and health. Confounding factors that a ect both education choices and health, such as (ob- served) parental background and (unobserved) intelligence, may play an important role in shaping this association. In this paper we estimate the impact of education on diseases in old age, accounting for this endogeneity. Our estimates are based on administrative data on men born in 1944–1947, who were examined for military service in the Netherlands between 1961–1965, linked to national death and medication use records. We assume medication use identifies diseases. We estimate a structural model, consisting of (i) an ordered probit model for the educational attainment, (ii) a Gompertz mortality model for survival up to old age, (iii) a probit model for medication use in old age and, (iv) a measurement system using IQ tests to identify latent intelligence. Educational choices, surviving up to old age and medication use all depend on observed individual factors and on latent intelligence. Based on the estimation results, we derive the impact of education on diseases in old age. Our empirical results reveal a strong effect of education on physical diseases, but low or no effect of education on depression and anxiety.
    Keywords: educational inequality, intelligence, medication use, structural equation model
    JEL: I14 I24 C35 C38
    Date: 2018–06
  12. By: Geoffrey J.D. Hewings (Regional Economics Applications Laboratory (REAL), University of Illinois)
    Abstract: This working paper reproduces the speech by Professor Geoffrey J.D. Hewings at the Nomination Ceremony as Member of the Andalusian Regional Science Academy, on 28 May 2018 at Loyola Andalusia University.Professor Hewings reviews the evolution of Regional Science since the sixties, highlighting the key and forgotten role of the space when the outcomes of the economic policies are assessed in terms of developments. In addition,the challenges posed by demographic change are drawn, pointing out the future research directions to be addressed by regional modelers.
    Keywords: Regional Science, Regional Development, Demographic changes.
    JEL: J11 O18 R11 R58
    Date: 2018–07
  13. By: Antonietta di Salvatore (Bank of Italy); Francesco Franceschi (Bank of Italy); Andrea Neri (Bank of Italy); Francesca Zanichelli (Bank of Italy)
    Abstract: At the beginning of 2017, Banca d’Italia conducted a survey to investigate financial literacy and inclusion among Italian adults. The survey is part of an OECD project to create an internationally comparable dataset on this important topic. The questionnaire was developed by the OECD International Network on Financial Education (INFE). The Italian sample consists of about 2,500 persons interviewed using two different methods: 40 per cent of them had a face-to-face interview while the others used a tablet to record their responses. Our findings show the existence of a substantial financial literacy gap between Italy and the other G20 countries, which is most evident among less educated respondents, among the elderly and among women. Compared with other countries, Italians are more aware of their limits or at least more cautious when assessing their level of financial knowledge. We also discuss some critical aspects of the OECD’s methodology that should be addressed in order to improve the measurement of financial literacy and to increase cross-country comparability.
    Keywords: financial literacy; financial inclusion; mode effect
    JEL: A20 I20
    Date: 2018–06
  14. By: George APOSTOLAKIS (Nyenrode Business Universiteit, Department of Economics, University of Crete); Gert VAN DIJK (Department of Social Sciences, Wageningen University, Wageningen, The Netherlands; TIAS School for Business and Society, Tilburg University, Tilburg, The Netherlands; Centre for Entrepreneurship, Governance & Stewardship, Nyenrode Business Universiteit, Breukelen, The Netherlands.)
    Abstract: Retirement planning is a key component in achieving retirement goals and fulfilling retirement expectations. Although several socio-economic and psychological factors associated with retirement planning have been reported in the literature, little is known about the influence that specific retirement-related issues have on retirement planning. In this paper, we examine the influence of five retirement concerns – the individual’s financial situation, living situation, care provision, health condition, and loneliness – on retirement planning. Our dataset is derived from a 2010 web-based survey in the care and wellbeing sector in the Netherlands.
    Keywords: healthcare; retirement planning; uncertainty
    JEL: D12 D60 G23 I31 J26
    Date: 2018–03
  15. By: Bénédicte H. Apouey (PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics); Cahit Guven (Deakin University - Minister for Innovation, Industry, Science and Research); Claudia Senik (PSE - Paris School of Economics, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique, UP4 - Université Paris-Sorbonne)
    Abstract: Is retirement good for your health? This article explores the impact of retirement on unexpected health evolutions. Using data from the annual Household, Income and Labour Dynamics in Australia survey (2001-2014), we construct measures of the mismatch between each person's expected and actual health evolution (hereafter, "health shocks"). We find that after retirement, the probability of negative shocks decreases and the likelihood of positive health shocks increases, for both genders. These shocks translate into variations of life satisfaction in the same direction (i.e. unexpected positive health shocks increase life satisfaction). Other indicators of mental and physical health taken from the SF-36 vary in the same way, i.e. improve unexpectedly after retirement. By definition, health shocks are immune to the problem of reverse causality that could run from health to retirement. Hence, our findings are consistent with a positive impact of retirement on health.
    Keywords: Australia,HILDA,Health,Retirement,Health Shocks,Life Satisfaction
    Date: 2018–05
  16. By: Yi Vonn Wong (Inje University); Sung Ho Yang (Department of Product Design, Inje University)
    Abstract: Among mobility aids for elderly, cane is considered as the basics and the most frequently used by elders to assist in their daily mobility. This research aims to gain further knowledge and secure essential references for designing a cane for elderly through summarizing and analyzing literature written on the effect of using cane (especially cane handles) on elderly users. In the research, three online Databases Science Direct, Pubmed and Medscape were used to search for relevant papers using key terms of Cane, Age gait, Ergonomic Design cane and their synonyms. Articles were then filtered by reviewing the abstracts according to the inclusion criteria: (1) the paper had to be written in English language, (2) the paper had to be published between 2006 and 2016, (3) Studies that had involved participants aged 65 and above, (4) Studies that had involved walking stick/ cane as part of the sample, (5) The paper had to be an original study, (6) The paper is not a conference abstract. The selected articles were then filtered again by reviewing the whole article to define the relevancy of the article to the objective: (1) To study the effects of cane in elders? walking speed, cane height, (2) To study the effects of cane handle in elders, (3) To synthesize findings for application in future cane designs. As a result, a total of 385,081 articles were obtained from databases Pubmed, Medscope and Science Direct by using various search terms and their synonyms. 565 articles remained after confirming the search term and title was related to the objective. Only 25 articles that eligible for the inclusion and exclusion criteria were remained. Multi-functionality, comfort ability and suitability, inter-changeability and material used are important attributes in cane handle design. Considering the health status, preference and living environment of the elders, attributes such as the color, design, material used, size and shape should be studied before designing the cane. This study is conducted as a part of long-term project that ultimately designs a cane for the frail by referring to the results found in this study.
    Keywords: Cane Design, Elderly, Mobility Aid
    JEL: I00
    Date: 2017–07
  17. By: Bénédicte H. Apouey (PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics)
    Abstract: Dans le contexte du vieillissement de la population, cet article s'intéresse aux attentes en termes de nouveaux services qui pourraient faciliter le bien vieillir en France. A partir de données originales sur les adhérents d'une mutuelle, nous nous concentrons sur les attentes relatives à sept types de services (services liés à la vie sociale, et à la santé et aux soins, entre autres) et étudions leurs déterminants. Nos analyses montrent le rôle majeur joué par l'altruisme, la solidarité, et l'anticipation de la dépendance dans ces attentes.
    Keywords: vieillissement,bien vieillir,France,solidarité,séniors,services,altruisme
    Date: 2018–06
  18. By: Hintermann, Beat (University of Basel); Minke, Matthias (University of Basel)
    Abstract: We investigate the social value of medical interventions at the end of life that tend to have a high cost-benefit ratio. We model the optimal allocation of health resources across a continuum of diseases that dier by severity and treatment options, and extend it to allow for learning spillovers between treatments. We calibrate our model to admissions to intensive care units in Switzerland. Cancer treatments associated with learning spillovers that decrease the mortality for non-cancer patients by 1 percentage point justify a costbenefit ratio per additional life-year of 1.78.
    Keywords: End of life; allocation of health resources; learning spillovers
    JEL: I10
    Date: 2018–06–05
  19. By: Canta, Chiara; Cremer, Helmuth
    Abstract: We study the design of public long-term care (LTC) insurance when the altruism of informal caregivers is uncertain. We consider non-linear policies where the LTC benefit depends on the level of informal care, which is assumed to be observable while children's altruism is not. The traditional topping up and opting out policies are special cases of ours. Both total and informal care should increase with the children's level of altruism. This obtains under full and asymmetric information. Social LTC, on the other hand, may be non-monotonic. Under asymmetric information, social LTC is lower than its full information level for the lowest level of altruism, while it is distorted upward for the higher level of altruism. This is explained by the need to provide incentives to high-altruism children. The implementing contract is always such that social care increases with formal care.
    Keywords: long term care; opting out; private insurance; public insurance; topping up; uncertain altruism
    JEL: H2 H5
    Date: 2018–06

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