Efficiency in Family Bargaining: Living Arrangements and Caregiving Decisions of Adult Children and Disabled Elderly Parents

Liliana E. Pezzin, Robert A. Pollak, Barbara S. Schone

NBER Working Paper No. 12358
Issued in July 2006
NBER Program(s):Economics of Aging, Labor Studies

In this paper, we use a two-stage bargaining model to analyze the living arrangement of a disabled elderly parent and the assistance provided to the parent by her adult children. The first stage determines the living arrangement: the parent can live in a nursing home, live alone in the community, or live with any child who has invited coresidence. The second stage determines the assistance provided by each child in the family. Working by backward induction, we first calculate the level of assistance that each child would provide to the parent in each possible living arrangement. Using these calculations, we then analyze the living arrangement that would emerge from the first stage game. A key assumption of our model is that family members cannot or will not make binding agreements at the first stage regarding transfers at the second stage. Because coresidence is likely to reduce the bargaining power of the coresident child relative to her siblings, coresidence may fail to emerge as the equilibrium living arrangement even when it is Pareto efficient. That is, the outcome of the two-stage game need not be Pareto efficient.

download in pdf format
   (185 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w12358

Published: Liliana E. Pezzin & Robert A. Pollak & Barbara S. Schone, 2007. "Efficiency in Family Bargaining: Living Arrangements and Caregiving Decisions of Adult Children and Disabled Elderly Parents," CESifo Economic Studies, Oxford University Press, vol. 53(1), pages 69-96, March. citation courtesy of

Users who downloaded this paper also downloaded* these:
Pollak w11239 Bargaining Power in Marriage: Earnings, Wage Rates and Household Production
Pezzin, Pollak, and Schone w14328 Long-Term Care of the Disabled Elderly: Do Children Increase Caregiving by Spouses?
Kotlikoff and Morris w2734 Why Don't the Elderly Live With Their Children? A New Look
Lundberg and Pollak w12908 The American Family and Family Economics
Engelhardt, Gruber, and Perry w8911 Social Security and Elderly Living Arrangements
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us