An Economic Analysis of the Market for Long-term Care: Evidence from Alzheimer's Disease.

This study investigates whether or not people’s financial decisions vary with information shocks about Alzheimer’s disease (AD) and the supply of informal care supplied by children. To do so, I estimate economic models using data from the 1998-2010 Health and Retirement Study (HRS) and the 2008-2009 Simmons National Consumer Surveys (NCS). I find empirical evidence that the exposure to particular types of information does influence people’s decisions to buy LTC insurance. Specifically, information about familial history of AD, about costs of LTC and coverage of insurance, and about family’s experience with AD patients increases the probability that a person owns LTC insurance. Information regarding celebrities’ disclosure that they have been diagnosed with AD and about general facts on the disease decreases the probability of holding LTC insurance. I also find that the cumulated stock measures of information, as opposed to flow measures, are more appropriate to fully capture the true effects of information about AD on people’s financial decisions. I find strong evidence in support of Becker’s Rotten Kid theorem (1974, 1981). Using a two-stage model, I show that the probability that parents receive informal care from one of their children is negatively related to a child’s cost of providing care and is positively related to the degree of reciprocity between parents and their children. The estimated expected probability that a parent will receive care in the future is positively correlated with the level of savings and transfers to her child. These empirical results are consistent with the hypothesis that parents strategically withhold bequests (or transfer money to their children) to elicit informal care from their children. Advisors/Committee Members: Lillard, Dean (Advisor), Montalto, Catherine (Advisor).