TY - JOUR

T1 - Two-sided intergenerational moral hazard, long-term care insurance, and nursing home use

AU - Courbage, C.

AU - Zweifel, Peter

PY - 2011/8/1

Y1 - 2011/8/1

N2 - Two-sided intergenerational moral hazard occurs (i) if the parent's decision to purchase long-term care (LTC) coverage undermines the child's incentive to exert effort because the insurance protects the bequest from the cost of nursing home care, and (ii) when the parent purchases less LTC coverage, relying on child's effort to keep him out of the nursing home. However, a "net" moral hazard effect obtains only if the two players' responses to exogenous shocks fail to neutralize each other, entailing a negative relationship between child's effort and parental LTC coverage. We focus on outcomes out of equilibrium, interpreting them as a break in the relationship resulting in no informal care provided and hence high probability nursing home admission. Changes in the parent's initial wealth, LTC subsidy received, and child's expected inheritance are shown to induce "net" moral hazard, in contradistinction to changes in child's opportunity cost and share in the bequest.

AB - Two-sided intergenerational moral hazard occurs (i) if the parent's decision to purchase long-term care (LTC) coverage undermines the child's incentive to exert effort because the insurance protects the bequest from the cost of nursing home care, and (ii) when the parent purchases less LTC coverage, relying on child's effort to keep him out of the nursing home. However, a "net" moral hazard effect obtains only if the two players' responses to exogenous shocks fail to neutralize each other, entailing a negative relationship between child's effort and parental LTC coverage. We focus on outcomes out of equilibrium, interpreting them as a break in the relationship resulting in no informal care provided and hence high probability nursing home admission. Changes in the parent's initial wealth, LTC subsidy received, and child's expected inheritance are shown to induce "net" moral hazard, in contradistinction to changes in child's opportunity cost and share in the bequest.

KW - Management studies

UR - http://www.scopus.com/inward/record.url?scp=79959892833&partnerID=8YFLogxK

U2 - 10.1007/s11166-011-9120-6

DO - 10.1007/s11166-011-9120-6

M3 - Journal articles

AN - SCOPUS:79959892833

VL - 43

SP - 65

EP - 80

JO - Journal of Risk and Uncertainty

JF - Journal of Risk and Uncertainty

SN - 0895-5646

IS - 1

ER -