``Honor thy father and thy mother'' or not: uncertain family aid and the design of social long term care insurance (Q826628)

The paper focuses on long-term care insurance programs when informal care/family assistance is uncertain. The starting point is the observation that private insurance markets, although fair from an actuarial point of view, do not meet altruism default. The analysis is set in three scenarios, each corresponding to a specific public program: (1) a topping-up scheme, (2) an opting-out scheme, and (3) an opting-out-cum-transfer scheme (which is a combination of the two above). The central question is which contract, and under what circumstances, would do better than private insurance. The crowding out implications of each policy, both at the intensive and extensive margin, are also considered. The study compares the three types of policies with private insurance; however, none of them is fully effective against altruism default. Different crowding-out implications for the informal care that children provide, in relation to each contractual scheme, are in detail. The results of this analysis are based on a social welfare function that depends solely on the parents' utility; then the utility of the grown-up children in the social welfare function is also taken into account. Appendix contains technical details and proofs.