Informal care should be a substitute for nursing homes but empirical evidence often suggests the opposite. This may be because informal care receipt is positively correlated with unobserved negative health characteristics. We exploit variation in children's characteristics as instruments for informal care to provide Two-Stage Least Squares (TSLS) estimates of nursing home use among a sample of 6855 individuals from the 1993-2000 waves of the AHEAD survey. While OLS results suggest informal care is associated with greater future nursing home risk, TSLS estimates show that receipt of informal care statistically and substantially reduces the risk of nursing home entry. This finding has implications for Medicaid and private long-term care insurance markets.
[Show abstract][Hide abstract] ABSTRACT: This paper analyzes the impact of informal care by children on the use of varieties of formal care among the elderly in China. Using the 2005 Chinese Longitudinal Health Longevity Survey (CLHLS) and the 2011 Chinese Health and Retirement Longitudinal Study (CHARLS) data, we build an empirical model to analyze the substitute/complementary effect of informal care on the use of paid-help, nursing home, as well as outpatient care.Instrumental variable estimate is adopted to control for the potential endogeneity existing between formal and informal care. Estimation results implicate that informal care has a significant substitute effect on the use of paid-help, nursing home, and outpatient care for the elderly. In addition, the study finds a negative impact of health condition on the elderly’s demand for formal care. Demographic and family characteristics also affect such demand. The results provide a new policy implication regarding the elderly care issue in China: by promoting informal care within the family, the government will be able to achieve the decrease in the elderly’s demand for formal health care.
"Most of the existing studies estimate recursive simultaneous equation models that focus on the formal care process only and use instrumental variable approaches to identify the effect of informal support on formal care, thus relying on the availability of valid instruments (e.g. Lo Sasso and Johnson, 2002; Van Houtven and Norton 2004, 2008; Charles and Sevak, 2005; Bolin et al., 2008). "
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