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Bilateral Intergenerational Moral Hazard: Empirical Evidence from China

Author

Listed:
  • Xian Xu

    (School of Economics, Fudan University, 600 Guoquan Road, Shanghai 200433, China)

  • Peter Zweifel

    (Department of Economics, University of Zurich, R&aauml;mistr. 71, Zurich 8006, Switzerland.)

Abstract

Bilateral intergenerational moral hazard (BIMH) has been considered as one of the most important reasons for the sluggish development of private long-term care (LTC) insurance. On the one hand, the parent, who relies on child effort to avoid admission to the nursing home, may abstain from purchasing LTC insurance. On the other hand, buying LTC insurance coverage serves to protect the available bequest from the cost of LTC, thus weakening child interest in providing informal care as a substitute for formal LTC. In this paper, we investigate whether BIMH with respect to LTC exists in China. A survey conducted in October 2012 in Shanghai suggests that respondents may well exhibit BIMH as predicted by Courbage and Zweifel. However, contrary to their predictions, neither a decrease in parental wealth nor a decrease in the child’s expected inheritance are found to trigger net BIMH effects. These findings have important implications both for insurance companies planning to develop LTC products and for Chinese public policy concerning LTC.

Suggested Citation

  • Xian Xu & Peter Zweifel, 2014. "Bilateral Intergenerational Moral Hazard: Empirical Evidence from China," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 39(4), pages 651-667, October.
    • Handle: RePEc:pal:gpprii:v:39:y:2014:i:4:p:651-667
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    Cited by:

    1. Panos Kanavos & Olivier Wouters & Joan Costa-Font & Christophe Courbage & Peter Zweifel, 2017. "Policy Dilemmas in Financing Long-term Care in Europe," Global Policy, London School of Economics and Political Science, vol. 8, pages 38-45, March.
    2. Zweifel, Peter, 2020. "Innovation in long-term care insurance: Joint contracts for mitigating relational moral hazard," Insurance: Mathematics and Economics, Elsevier, vol. 93(C), pages 116-124.
    3. repec:bla:glopol:v:8:y:2017:i:s2:p:38-45 is not listed on IDEAS
    4. Martin Eling & Omid Ghavibazoo, 2019. "Research on long-term care insurance: status quo and directions for future research," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 44(2), pages 303-356, April.

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