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dc.contributor.authorDe Donder, Philippeen_US
dc.contributor.authorLeroux, Marie-Louiseen_US
dc.date.accessioned2012-11-01en_US
dc.date.accessioned2012-11-02T17:10:54Z-
dc.date.available2012-11-02T17:10:54Z-
dc.date.issued2012en_US
dc.identifier.urihttp://hdl.handle.net/10419/65850-
dc.description.abstractWe build a political economy model where individuals differ in the extent of the behavioral bias they exhibit when voting first over social long-term care (LTC) insurance and then choosing the amount of LTC annuities. LTC annuities provide a larger return if dependent than if healthy. We study the majority voting equilibrium under three types of behavioral biases: myopia, optimism and sophisticated procrastination. Optimists and myopics similarly under-estimate their own dependency risk both when voting and when buying LTC annuities. They differ in that optimists know the correct average dependency risk (that determines the return of both social and private insurance), while myopics also under-estimate this average risk (and thus over-estimate the insurance return). Sophisticated procrastinators act as if they under-estimated their own risk when buying annuities, but anticipate this bias at the time of voting. We obtain that the stylized observation of lack of LTC insurance is compatible with agents being optimistic or myopic, but not sophisticated procrastinators. Increasing the difference in return across dependency states for the LTC annuity is detrimental to sophisticated voters and to very biased myopic and optimist voters. Finally, less myopic individuals may end up worse off, at the majority-voting equilibrium, than more myopic agents, casting some doubt on the usefulness of information campaigns.en_US
dc.language.isoengen_US
dc.publisherCESifo Münchenen_US
dc.relation.ispartofseriesCESifo Working Paper: Public Finance 3972en_US
dc.subject.jelH55en_US
dc.subject.jelI13en_US
dc.subject.jelD91en_US
dc.subject.ddc330en_US
dc.subject.keywordmajority votingen_US
dc.subject.keywordmyopiaen_US
dc.subject.keywordoptimismen_US
dc.subject.keywordsophisticated procrastinatorsen_US
dc.subject.keyworddependency linked annuityen_US
dc.subject.keywordenhanced life annuityen_US
dc.subject.keywordcomplementary private insuranceen_US
dc.titleBehavioral biases and long term care annuities: A political economy approachen_US
dc.typeWorking Paperen_US
dc.identifier.ppn72906977Xen_US
dc.rightshttp://www.econstor.eu/dspace/Nutzungsbedingungenen_US
Appears in Collections:CESifo Working Papers, CESifo Group Munich

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