Long‐term care policy with lazy rotten kids

Abstract

This paper studies the determination of informal long‐term care (LTC) provided by children in a scenario which is somewhere in between perfect altruism and selfish exchanges. Parents are altruistic but children are purely selfish, and neither side can make credible commitments. 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 efficiency is achieved. We show that when family aid is introduced the outcome is likely to be inefficient. Still, the rotten kid mechanism is at work and ensures that a positive level of LTC 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 first assume that families are identical ex ante and then consider the case where dynasties differ in wealth. We study how the provision of LTC can be improved by public policies. 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.

Transfers within a Three Generations Family: When the Rotten Kids Turn into Altruistic Parents

“…Grandparents only give as much as they find ex post (after aid is provided) optimal to bequeath given their altruism. This is in line with Becker's "rotten kids" mechanism; see Cremer and Roeder (2013) for a recent application to long-term care. Equation ( 17) is more unusual and due to the three generational setting we consider.…”

Estate recovery and long‐term care insurance

“…The model set-up mainly stems from Courbage and Eeckhoudt (2012), Cremer et al (2016) and Cremer and Roeder (2017). We consider a parent characterised by a state-dependent Von Neumann-Morgenstern (VNM) utility function and a child.…”

“…The parent and the child interact in the guise of a non-cooperative game. The timing of the model, based on Cremer et al (2016) and Cremer and Roeder (2017), is as follows: at = 0, the government announces its policies, i.e. the levels of and .…”

The Public Economics of Long‐term Care. A Survey of Recent Contributions

“…Cremer and Roeder () study a setting where parents are altruistic but children are purely selfish and act like Becker's (, ) “rotten kids”: they provide informal care only because it increases the parents’ bequests. They show that the level of informal aid as well as the children's labor supply are generally inefficient and, to achieve the first‐best allocation, need to be corrected by introducing relevant subsidies.…”