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How Is the Trade-off between Adverse Selection and Discrimination Risk Affected by Genetic Testing? Theory and Experiment

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  • David Bardey
  • Philippe De Donder
  • César Mantilla

Abstract

We compare two genetic testing regulations, Disclosure Duty (DD) and Consent Law (CL), in an environment where individuals choose to take a genetic test or not. DD forces agents to reveal the test results to their insurers, resulting in a discrimination risk. CL allows agents to withhold that information, generating adverse selection. We complement our model with an experiment. We obtain that a larger fraction of agents test under CL than under DD, and that the proportion of individuals preferring CL to DD is non-monotone in the test cost when adverse selection is set endogenously at its steady state level.

Suggested Citation

  • David Bardey & Philippe De Donder & César Mantilla, 2017. "How Is the Trade-off between Adverse Selection and Discrimination Risk Affected by Genetic Testing? Theory and Experiment," Documentos CEDE 15465, Universidad de los Andes, Facultad de Economía, CEDE.
    • Handle: RePEc:col:000089:015465
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Chris Sampson’s journal round-up for 28th October 2019
      by Chris Sampson in The Academic Health Economists' Blog on 2019-10-28 12:00:05

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    Cited by:

    1. Bardey, David & De Donder, Philippe, 2019. "A Welfare Analysis of Genetic Testing in Health Insurance Markets with Adverse Selection and Prevention," TSE Working Papers 19-1035, Toulouse School of Economics (TSE), revised 22 Jan 2024.
    2. Karlsson Linnér, Richard & Koellinger, Philipp D., 2022. "Genetic risk scores in life insurance underwriting," Journal of Health Economics, Elsevier, vol. 81(C).
    3. David Bardey & Philippe De Donder, 2015. "Welfare Impacts of Genetic Testing in Health Insurance Markets: Will Cross-Subsidies Survive?," Documentos CEDE 17220, Universidad de los Andes, Facultad de Economía, CEDE.
    4. Martin Eling & Ruo Jia & Jieyu Lin & Casey Rothschild, 2022. "Technology heterogeneity and market structure," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 89(2), pages 427-448, June.

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    More about this item

    Keywords

    Consent Law; Disclosure Duty; Personalized Medicine; Test take up rate; pooling health insurance contracts;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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