The economics of long-term care: a survey by Peter Zweifel Reinhold Schnabel, University of Duisburg-Essen and ZEW Mannheim, Discussion of

Aims of the paper Survey on the decision making in Longterm Care Identify the decision makers in the LTC context Describe their objectives and constraints, and derive the theoretical implications Draw policy conclusions The paper is organized accordingly.

Specific problems in LTC (1) From the beginning, the paper identifies one important issue that lies at the core of LTC. The helplessness of the elderly, in particular: the limited ability to decide. This makes the elderly vulnerable. They depend on the decisions of imperfectly altruistic agents – or to put it more directly: Rotten kids, greedy physicians, bad nursing homes. The increasing incidence of Alzheimer or other forms of dementia invalidates many of our economic models.

(2) The problem of intertemporal decision-making and uncertainty This is mentioned in the introduction, but not explicitly incorporated in the survey. At younger age, the individual should anticipate LTC as a likely outcome. Not only the financial burden (  saving decision), but also the potential loss of mental abilities. Persons can buy insurance, pick a nursing home in advance, sign an advance directive and thus induce a commitment to a certain level / quality of care. Evidence. Intertemporal decisions are even more important if future selves are imperfect.

The decision makers 1.The elderly or the prospective patient. The paper correctly argues that traditional rational- agent models are not adequate. Family members as substitute agents. A decision model would have to incorporate the prospects of dementia and imperfect providers of care and advice (family, health service etc.). However, there is little known about how to do this. I think it requires a dynamic model in which moderately old persons try to commit their future selves and their relatives.

Exchange / bribery motives when the elderly person is not accountable anymore. How can the elderly decide how to use their wealth if they have Alzheimer? I suppose, the traditional exchange model does not work anymore. The relatives would appropriate the wealth directly. Again: the (imperfect) solution may be some form of pre-commitment.

(2) Relatives and friends. Potential providers of care (make of buy) Imperfect Substitutes for the decision maker.  the problem of neglecting the needs of elderly. (3) Others (physicians, hospitals, nursing homes) Pursue their own interest.

The frame is static: models give the result conditional on resources at time t. Also, in the papers of this conference wealth was taken as given (e.g. in regression analysis). Savings puzzle: countries with large social transfer programs (social security, health insurance, LTC insurance) tend to have the highest (average) savings rates. E.g. Germany: very little decumulation at old age. Could the LTC literature contribute to the savings literature? How do we integrate the single static models if people act forward looking?

Policy External effects of poverty  government intervention (some form of minimum guarantee). Is there a role for government intervention above what is mentioned in the paper? Mandatory coverage protects the elderly against rotten kids. Mandatory insurance may compensate for the fact that (revealed) WTP may be to low, thus improving efficiency. The government as provider of checks and balances, keeping the different providers at bay?