Nursing Home Choice, Family Bargaining and Optimal Policy in a Hotelling Economy

We study the impact of the distribution of bargaining power within the family on the choices of nursing homes, and on the location and prices chosen by nursing homes. When the dependent parent only cares about distance, whereas his child cares also about price, the mark-up rate of nursing homes increases with the bargaining power of the dependent parent. We contrast the laissez-faire with the social optimum, and show how the latter can be decentralized 1) in a first-best setting and 2) when the government cannot force location. Finally, we consider families with more than one child and introduce wealth accumulation, which allows us to study the joint dynamics of wealth and nursing home prices. We find that a larger capital stock raises the price of nursing homes.