The Finance Brown Bag Seminar is held by the Institute for Finance, Banking and Insurance (WU Vienna) and the Vienna Graduate School of Finance (VGSF). It serves as a presentation platform for PhD students, faculty members, and visitors. An overview of BBS on the website of the Institute for Finance, Banking and Insurance.
October 23rd, 2018, 15:00-16:00, D4.4.008
Peter Zweifel, ETH Zürich
Title: "Long-term care insurance: joint contracts for mitigating relational moral hazard"
Recently, joint long-term care (LTC) insurance policies covering two related individuals have become available. This contribution purports to find out whether they have the potential of mitigating relational moral hazard (RMH) effects. For decades, intra-family moral hazard has been suspected of being responsible for the sluggish development of private LTC insurance. The parent, anticipating the informal care provided by the child that has the effect of lowering expenditure on formal LTC, is tempted to buy less LTC coverage. The child (or more generally, the partner of a senior person), knowing that the bequest is protected by LTC insurance, has less incentive to provide informal care. Moreover, the amount of LTC coverage bought by the partner is found to fall in response to that of the senior person. Since a joint LTC policy makes senior and partner decide simultaneously rather than sequentially, it may lead to a partial internalization of RMH by turning the amounts of LTC coverage into strategic complements, the amount of coverage whereas the two amount of coverage purchased by the senior and opf informal care provided by the junior continue to be strategic substitutes.
Key words: Long-term care; long-term care insurance; intra-family moral hazard; bilateral moral hazard; relational moral hazard