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Adverse Selection in Elderly Care

Author

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  • Amedeo Fossati

    (University of Genoa, Italy)

  • Marcello Montefiori

    (University of Genoa, Italy)

Abstract

This paper provides a theoretical model to analyse public funding of family elderly care when two severity type are present (the high and the low), under asymmetry of information and increasing costs. The social planner can redistribute between households, but because of incomplete information he is prevented from observing the type of household. The welfare optimum is characterized both under full and asymmetric information. Under complete information it turns out that the transfer has to be set in such a way to induce equality in the marginal utility of income. The direction of the transfer is no longer clear-cut (both under complete and asymmetric information). Specifically it cannot be ruled out that the transfer flows from the high severity / high cost type to the low severity /low cost type, where intuitively one would expect the opposite.

Suggested Citation

  • Amedeo Fossati & Marcello Montefiori, 2011. "Adverse Selection in Elderly Care," DEP - series of economic working papers 7/2011, University of Genoa, Research Doctorate in Public Economics.
    • Handle: RePEc:gea:wpaper:7/2011
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    References listed on IDEAS

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    1. Richard C. Cornes & Emilson C. D. Silva, 2003. "Public Good Mix in a Federation with Incomplete Information," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 5(2), pages 381-397, April.
    2. Buchholz, Wolfgang & Konrad, Kai A., 1995. "Strategic transfers and private provision of public goods," Journal of Public Economics, Elsevier, vol. 57(3), pages 489-505, July.
    3. Boadway, Robin & Pestieau, Pierre & Wildasin, David E, 1989. "Non-cooperative Behavior and Efficient Provision of Public Goods," Public Finance = Finances publiques, , vol. 44(1), pages 1-7.
    4. Cornes, Richard C. & Silva, Emilson C. D., 2002. "Local public goods, inter-regional transfers and private information," European Economic Review, Elsevier, vol. 46(2), pages 329-356, February.
    5. Heitmueller, Axel & Inglis, Kirsty, 2007. "The earnings of informal carers: Wage differentials and opportunity costs," Journal of Health Economics, Elsevier, vol. 26(4), pages 821-841, July.
    6. Office of Health Economics, 2007. "The Economics of Health Care," For School 001490, Office of Health Economics.
    7. Caplan, Arthur J. & Cornes, Richard C. & Silva, Emilson C. D., 2000. "Pure public goods and income redistribution in a federation with decentralized leadership and imperfect labor mobility," Journal of Public Economics, Elsevier, vol. 77(2), pages 265-284, August.
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    Cited by:

    1. Amedeo Fossati, 2012. "The Italian Tradition in Public Finance: an Annotated Bibliography of Mauro Fasiani," DEP - series of economic working papers 1/2012, University of Genoa, Research Doctorate in Public Economics.

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    More about this item

    Keywords

    asymmetric information; adverse selection; elderly care; redistribution;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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