LONG-TERM-CARE INSURANCE AND BEQUESTS AS INSTRUMENTS FOR SHAPING INTERGENERATIONAL RELATIONSHIPS

The growing demand for long-term care (ITC) causes the relationship be tween children and their parents to gain increased importance for soci ety. Parents may create incentives for children to provide LTC through bequests. or they may purchase LTC insurance. While these instruments have been analyzed separately in the literature, this article shows t hat optimal LTC insurance must be small in the presence of bequests. T hus, the failure of private LTC insurance to diffuse into middle-class households may be explained by the fact that the bequest instrument i s fully available to the current generation of parents, who for the fi rst time since 1914 are in a position to bequeath an intact stock of c apital in major industrialized countries.