CORE DP 2026 / 11

Long-term care with myopic carers / Justina Klimaviciute, Pierre Pestieau, Jérôme Schoenmaeckers 

> This paper analyzes the design of a social policy scheme for long-term care in a setting where disabled elderly individuals receive care both informally, from family members, and formally, from professional providers. We introduce two key features: informal caregivers bear substantial physiological and psychological costs, and they tend to be myopic with respect to these health consequences. Under perfect observability, an optimal policy can induce caregivers to exercise caution and provide an appropriate level of informal care. However, when individual characteristics are not common knowledge, public policy must resort to distortions and indirect instruments to guide agents toward optimal behavior - a classic second-best problem.