The Challenge of Organizing Elderly Care Programmes: Optimal Policy Design under Complete and Asymmetric Information

The increasing life expectancy poses challenges on the future sustainability of long-term care services that today strongly depend on informal care provided within the family by working age children. Ongoing social changes are likely to weaken the informal provision of care. The paper derives optimal policies to help the policy-maker to choose innovative and sustainable solutions to support home care, taking into account the severity of health condition and the different opportunity costs of carers. Drawing inspiration from real world policies, the suitable policy combines lump-sum transfers, paid permissions from work and in-kind provisions. In some circumstances, benefits can favour higher rather than lower income individuals. In the context of information asymmetry, the implementation of the second-best outcome requires the level of care of the most subsidized households’ to be forced towards certain targets to avoid adverse selection.