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Long term care insurance with state-dependent preferences

Author

Listed:
  • Philippe de Donder

    (TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

  • Marie-Louise Leroux

    (ESG - Ecole des Sciences de la Gestion - UQAM - Université du Québec à Montréal = University of Québec in Montréal)

Abstract

We study the demand for actuarially fair Long Term Care (LTC hereafter) insurance in a setting where autonomous agents only care for daily life consumption while dependent agents also care for LTC expenditures. We assume that dependency decreases the marginal utility of daily life consumption. We rst obtain that some agents optimally choose not to insure themselves, while no agent wishes to buy complete insurance. We then show that the comparison of marginal utility of income (as opposed to consumption) across health states depends on (i) whether agents do buy LTC insurance at equilibrium or not, (ii) the comparison of the degree of risk aversion for consumption and for LTC expenditures, and (iii) the income level of agents. Our results then oer testable implications that can explain (i) why few people buy Long Term Care insurance and (ii) the discrepancies between various empirical works when measuring the extent of state-dependent preferences for LTC.

Suggested Citation

  • Philippe de Donder & Marie-Louise Leroux, 2021. "Long term care insurance with state-dependent preferences," Working Papers hal-04958164, HAL.
    • Handle: RePEc:hal:wpaper:hal-04958164
    Note: View the original document on HAL open archive server: https://hal.science/hal-04958164v1
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