Abstract

In most western countries the largest share of long-term care (LTC) is borne by the informal care sector, defined as unpaid help from family and friends. For the US, estimates of the share of informal care amount to 58%t of total LTC according to CBO (2008). Despite its quantitative importance, the key factors influencing the informal care sector are still not well understood. In this paper, we empirically assess the presence and strength of a potential exchange motive within the informal care sector.

We study whether parental bequest and their distribution among children are influenced by informal help from children, an idea which has been labeled as the 'strategic bequest motive' by Bernheim, Summer and Schleifers (1985). We focus on the – more broadly defined – exchange motive between single (e.g. widowed) elderly parents and their adult offspring. We make use waves 2002–2010 of the exit interview from the Health and Retirement Study (HRS) which is conducted with close relatives after the respondents’ death. The exit interview is a unique data set which allows us to study bequests, their distribution among family members, and help by children. Details about the distribution of bequests and help are crucial for studying the exchange motive where previous studies had to rely on proxy variables. To address endogeneity problems, we estimate three different models. First, we run simple Logit and Tobit regressions where we add proxy variables for altruism to account for the omitted variable bias. Second, we employ a Family Fixed Effects (FE) approach addressing potential endogeneity coming from reversed causality and omitted variables. With this approach we average out all family specific characteristics like family altruism. Third, we set up an Instrumental Variable (IV) regression which in principle simultaneously accounts for the omitted variable bias, reversed causality and potential measurement errors.

Our findings confirm a strong and significant influence of children's help with long-term care on parental inheritances, suggesting a large market size of informal care in terms of monetary turnover. We find that in the total sample providing any care significantly increases received bequests on average by $12,309. In the sub-sample of respondents, who bequeathed unequally, within family effects amount to $51,300 on average for providing any care. On the extensive margin, the probability to receive a positive bequest is increased by 8.94% for children who help. The quantitatively large size of exchange between help with LTC and inheritance points to a functioning family insurance with respect to the risk of becoming in need of long-term care. The understanding of the exchange motive has far reaching consequences for judging policy reforms on a more/less generous public long-term care system but also concerning e.g. inheritance taxes.

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