Optimal long-term care policy in an intergenerational exchange setting

We examine the optimality of public long-term care policy, incorporating an exchange game between elderly parents and adult children and transfer-seeking competition among siblings, instead of children's altruism. Results reveal that when children compete to obtain more valuable bequests from parents in exchange for elderly care, public long-term care policy is optimal if government can provide long-term care more efficiently than children can, thereby reducing parental bequests, possibly to zero. This is likely to be the case when children's wages are high. Formal long-term care might not be necessary if parents can receive adequate informal care in exchange for bequests to children with low wages.