Academic journal article Economic Inquiry

Measuring and Modeling Intergenerational Links in Relation to Long-Term Care

Academic journal article Economic Inquiry

Measuring and Modeling Intergenerational Links in Relation to Long-Term Care

Article excerpt


Long-term care (LTC) has profound intergenerational implications. It can be very costly for those who need it, as well as onerous for loved ones who participate in its provision. These are among the many intergenerational aspects of LTC decisions that have featured in recent research. Yet, many other such linkages remain to be explored, in part due to data limitations.

The goal of this study is both to outline recent progress and to shed light on data enrichments that would liberate further progress. The central thesis is that further research progress rests at least as much on the generation of suitable family-related data as it does on advances in theory. The required data relate not only to past and present patterns of behavior, but also to conditional probabilities and contingent future behavior.

It is not standard in the economic literature to write an article focused on next generation measurement and how it would liberate research progress. Yet, engineering of appropriate data requires thought to be dedicated to principles of design. In particular, we highlight the intricacy, importance, and the research potential of appropriate family-based panel data. It has traditionally been easier to find outlets for speculative theories of behavior than for speculative proposals for engineering of new data. This is a limitation that the profession imposes on itself. It is the goal of this paper and the other papers in the symposium to relax this constraint and to elevate data design as a research priority.

The article has four main sections. The first three cover important areas in which our understanding of LTC rests on improved understanding of the family setting. Section II relates to the pre-care period of spending and saving by elders. Section III relates to the period of care itself and to possible care provision by children. Section IV focuses on the very end of life and on possibly conflicting priorities at that time.

The research in Section II focuses on the balance between precautionary savings and bequest motives. It also introduces some of the recent data enrichments. These relate in particular to links between the high costs of private care for elders, whom we refer to as parents, and bequests to heirs, whom we refer to as children. The desire on the part of many parents to meet their possible later care needs may help explain both their slow spend-down of wealth in retirement (De Nardi, French, and Jones 2010; Poterba, Venti, and Wise 2011), and their low interest in annuities (Benartzi, Previtero, and Thaler 2011; Davidoff, Brown, and Diamond 2005). Yet, this is inherently a distributional decision also. Purchase of private LTC can be so costly as to significantly dent wealth available for transfers to children and/or bequests (De Nardi, French, and Jones 2010). Nursing homes currently average over $90,000 a year, with around-the-clock care at home averaging even more. Indeed, Marshall, McGarry, and Skinner (2011) find that much out-of-pocket medical spending near the end of life is for LTC needs. The impending risk of such future expenditures may lead parents to save/hold on to assets and self-insure, resulting in large bequests should they not need care (Lockwood 2014), or the use of bequests and/or inter vivos transfers to compensate children who provided needed care (Fahle 2015b; Groneck 2016).

While limitations on family-related data do constrain our understanding of LTC, recent research has already started to loosen these constraints. In particular, data enrichments are being developed to more accurately quantify the impact of different savings motives related to LTC and the family. Specifically, improved separation of precautionary savings and bequest motives involves appending survey-based data on beliefs and on preferences to classical choice data, as in Ameriks et al. (2011, 2015b, 2015c) and Brown, Goda, and McGarry (2016). Even with this, there is very little evidence on the patterns of inter vivos transfers and bequests, let alone the underlying motivations and comparative statics. …

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