DP11370 Long-Term Care and Births Timing
Due to the ageing process, the provision of long-term care (LTC) to
the dependent elderly has become a major challenge of our epoch. But
our societies are also characterized, since the 1970s, by a postponement
of births, which, by raising the intergenerational age gap, can a¤ect the
provision of LTC by children. In order to examine the impact of those
demographic trends on the optimal policy, we develop a four-period OLG
model where individuals, who receive childrens informal LTC at the old
age, must choose, when being young, how to allocate births along their
life cycle. It is shown that, in line with empirical evidence, early children
provide more LTC to their elderly parents than late children, because of
the lower opportunity cost of providing LTC when being retired. When
comparing the laissez-faire with the long-run social optimum, it appears
that individuals have, at the laissez-faire, too few early births, and too
many late births. We then study, in
rst-best and second-best settings,
how the social optimum can be decentralized by encourageing early births,
in such a way as to reduce the social burden of LTC provision.
