Peter Zweifel, ETH Zürich

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.

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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"

Ab­stract

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

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