The supply of children's time to disabled elderly parents

I. INTRODUCTION In recent years, economists have become increasingly interested in intergenerational transfers of both time and money.(1) Such transfers may be motivated by altruism or exchange. Models of altruism assume that a person's utility depends on the consumption or utility of other family members and her own consumption. For example, children may supply unpaid ("informal") care to aging parents because their utility increases when their parents are happier. One of the most striking predictions of models of altruism is that public subsidies tend to crowd out transfers by altruistic individuals, especially if the subsidy is financed by taxing the altruistic individual (Becker [1974]). In exchange models, there is typically altruism, but one family member, such as a parent, can induce a relative, such as a child or "kid,"(2) to provide more services or money than the relative would normally provide by threatening to withhold a bequest. To the extent that this is so, one would plausibly expect more care and attention to be provided to wealthy parents. When there is more than one kid, more care should be provided because the threat of disinheritance is more credible when there is competition between kids for bequests. In a well-known article, Bernheim, Shleifer, and Summers [1985] (hereafter referred to as BSS) found empirical support for the strategic bequest motive, based on an observed positive relationship between children's visits and telephone calls to elderly parents per child (as the measure of attention) and bequeathable wealth per child (as the measure of the financial motivation for providing such attention). One might expect this result to extend to decisions about direct provision of help ("informal care") that kids may provide to parents. The marginal benefit of such care is plausibly greater than the benefit derived from a visit or telephone call. In a recent article, however, we found no evidence that the strategic bequest motive is an important determinant of the amount of informal care kids provide or a related decision - whether or not to place the parent in a nursing home (Sloan, Hoerger, and Picone, [1996]). We focused on the distinction between cognitively aware parents who can threaten to disinherit their kids and cognitively unaware parents who cannot disinherit and examined whether this distinction had any effect on the probability that the parent entered a nursing home or on amounts of formal and informal care received if the parent remained in the community. Any strategic effects were swamped by the greater marginal benefit of care to the parent when the parent was cognitively unaware. Moreover, among the cognitively aware, richer parents actually received less informal care, contrary to the strategic model's predictions. Unfortunately, in past research on intergenerational transfers of time and money, it was not possible to control for the wealth, wage, and other characteristics of kids. To the extent that kid's wealth and wage were positively correlated with parent's wealth, which was observed, the parameter estimates on parent's wealth may be negatively biased. Although parent's wealth and kid's wealth and wage rates are plausibly positively correlated, they have opposite effects on the supply of kid's time, according to the strategic bequest model. That is, potential bequests from a parent may be less attractive to rich kids and therefore induce less care. We test the strategic bequest model using information on elderly parents and their children from two linked surveys, the 1989 National Long-Term Care Survey (NLTCS) for elderly individuals and the Survey of Informal Caregivers (SIC) for a subsample of the elderly's children. Using these data, we can include explicit measures of kid's wealth and wage rates, thereby avoiding the possible bias introduced by a correlation between parent's and kid's wealth and wages. Also, the data sets provide information on several pertinent health, cognitive, and functional status variables which are not typically observed in surveys of financial status. …