Home equity commitment and long-term care insurance demand |
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Authors: | Thomas Davidoff |
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Affiliation: | Haas School of Business, UC Berkeley, United States |
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Abstract: | This paper shows how home equity may substitute for long-term care insurance (LTCI). The elderly commonly hold substantial wealth in the form of home equity that is rarely spent before death, except for after moves to long-term care facilities. Absent strong bequest motives implies that marginal utility fluctuates less across health states than one would predict based on a standard model without wealth tied up in housing. Numerical examples show that this “asset commitment” may substantially weaken LTCI demand. |
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