Intergenerational Transfers of Time and Elderly Living Arrangements : A Bargaining Model of Family Resource Allocation Decisions

In this paper, we examine resource allocation decisions of adult children and their frail elderly parents in a broader context of intergenerational residence choices. Based on a bargaining framework, we propose and estimate a model of intergenerational transfers of time, labor market participation and living arrangement decisions with the following key features: First, parent and child share a family-specific public good, the elderly parent's "well-being," irrespective of their living arrangement. Second, living arrangement and the shares of time apportioned by the adult child to labor, leisure and parental care are endogenous. Finally, the substitutes to the child's time transfers include the purchase of market-based (formal) care and the parent's outside option of institutionalization. Results based on the simultaneous, multi-equation, endogenous switching model applied to a sample of 477 parent-child pairs from the 1986 matched Hebrew Rehabilitation Center for the Aged (HRCA) Survey of the Elderly and HRCA-NBER Child Survey are generally consistent with expectations. In particular, our findings indicate that living and care arrangement choices are not invariant to the division of resources within the family. Simulations based on the estimated parameters are used to examine the effects of a public transfer program on intergenerational family exchanges