Welcome to the Georgetown Center for Economic Research
April 16, 2018
GCER/Cemmap Applied Microeconomics Conference
The Georgetown Center for Economic Research is pleased to announce the Second Annual Applied Microeconomics Conference will be held on May 10-11, 2018. The conference, co-sponsored with the Centre for Microdata Methods and Practice, a joint venture by the Department of Economics University College London and the Institute for Fiscal Studies, will take place at Georgetown University. The conference program can be accessed by clicking here.
February 27, 2018
GCER Fellow Bouton's Vox Column on Gun Control Recently Republished.
January 23, 2018
GCER Fellow Bouton awarded Distinguished Associate Professorship.
We congratulate GCER Fellow and GU economist Laurent Bouton for receiving the prestigious designation of Provost's Distinguished Associate Professor at Georgetown University.
The Distinguished Associate Professorship is awarded each year to faculty members at GU who are "pushing the envelope of knowledge in their field and transmitting their passion for such work to their students."
January 16, 2018
Featured Research Profile: Winter-Spring 2018 GCER Featured Profile.
Child Care in Reverse: GCER Fellow Ami Ko explores the subtle effects of informal health care on the long-term care insurance market.
Almost 60 percent of 65 year-olds can expect to spend $100,000 on assisted care for the remainder of their lives. The costs include payments for nursing homes, assisted living facilities, and contractual in-home care. Despite the risk of incurring these substantial costs, fewer than one in ten seniors have long-term care (LTC) insurance.
In her recent paper, ``An Equilibrium Analysis of the Long-Term Care Insurance Market," Georgetown economist and GCER Fellow Ami Ko studies how informal care --- unpaid help provided by adult children --- can explain the dearth of LTC insurance.
Those that need long-term care often require assistance with basic daily tasks. Because this assistance does not always require professional training, informal care provided by adult children substitutes for market-provided services. In fact, over 60 percent of elderly parents with functional limitations rely on their children for help.
Because an individual who expects to receive informal care from his/her children may be less willing to purchase LTC insurance, the prevalence of informal care has implications for the insurance market. Yet, insurance companies do not collect information about informal care. As a result, consumers possess significant private information about their risks. This information asymmetry can result in adverse selection where only high-risk consumers who have limited access to informal care purchase insurance.
Professor Ko finds that adverse selection does occur in the LTC insurance market. She develops and estimates a structural model of the family where elderly parents and adult children interact to make long-term care decisions. Ko then uses the model to demonstrate that the likelihood of receiving informal care from children is a crucial factor in determining an individual's nursing home risks and the individual's willingness to pay for long-term care insurance. Ko finds that there is substantial adverse selection based on this key dimension of private information --- the availability of informal care. In equilibrium, the insurance market suffers from an underinsurance problem in which high-risk consumers with limited access to informal care drive out low-risk consumers with better access to informal care.
Using her model, Professor Ko also finds another interesting reason for why many elderly parents do not want LTC insurance; they worry that once they purchase insurance, their children will not help them with long-term care needs. In other words, parents worry that purchasing insurance may result in family moral hazard, where children reduce their caregiving behaviors in response to their parents' insurance coverage. This family moral hazard effect reduces parents' value for insurance, and this in turn, further depresses the market for LTC insurance.
Finally, she shows that if insurance companies collected information about consumers' children and priced their contracts based on that information, the equilibrium coverage rate would be much higher. This is because such child demographic-based pricing reduces the information asymmetry, and consequently mitigates the problem of adverse selection. Her findings emphasize the importance of considering substitutes (informal care) for insurance market efficiency.
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