Article

Behavioral Biases and Long Term Care Annuities

A Political Economy Approach

Philippe De Donder et Marie-Louise Leroux

Résumé

We develop a model where individuals all have the same probability of becoming dependent and vote over the social long term care insurance contribution rate before buying additional private insurance and saving. We study three types of behavioral biases, all having in common that agents under-weight their dependency probability when taking private decisions. Sophisticated procrastinators anticipate their mistake when voting, while optimistic and myopic agents have preferences that are consistent across choices. Optimists under-estimate their own probability of becoming dependent but know the average probability while myopics underestimate both. Sophisticated procrastinators attain the Örst-best allocation while myopics and optimists insure too little and save too much. Myopics and optimists more (resp., less) biased than the median are worse o§ (resp., better o§), at the majority voting equilibrium, when private insurance is available than when it is not.

Codes JEL

  • D91: Intertemporal Household Choice • Life Cycle Models and Saving
  • H55: Social Security and Public Pensions
  • I13: Health Insurance, Public and Private

Remplace

Philippe De Donder et Marie-Louise Leroux, « Behavioral Biases and Long Term Care Annuities: A Political Economy Approach », IDEI Working Paper, n° 749, octobre 2012, révision février 2013.

Philippe De Donder et Marie-Louise Leroux, « Behavioral Biases and Long Term Care Annuities: A Political Economy Approach », TSE Working Paper, n° 12-352, octobre 2012, révision février 2013.

Référence

Philippe De Donder et Marie-Louise Leroux, « Behavioral Biases and Long Term Care Annuities: A Political Economy Approach », The B. E. Journal of Economic Analysis & Policy (Advances), vol. 14, n° 2, juillet 2013, p. 551–575.

Voir aussi

Publié dans

The B. E. Journal of Economic Analysis & Policy (Advances), vol. 14, n° 2, juillet 2013, p. 551–575