Genetic Testing with Primary Prevention and Moral Hazard

48 Pages Posted: 13 Jul 2012

See all articles by David Bardey

David Bardey

Universidad de los Andes, Colombia - Department of Economics

Philippe De Donder

University of Toulouse 1 - Toulouse School of Economics (TSE)

Multiple version iconThere are 2 versions of this paper

Date Written: June 10, 2012

Abstract

We develop a model where a genetic test reveals whether an individual has a low or high probability of developing a disease. A costly prevention effort allows high-risk agents to decrease this probability. Agents are not obliged to take the test, but must disclose its results to insurers, and taking the test is associated to a discrimination risk.

We study the individual decisions to take the test and to undertake the prevention effort as a function of the effort cost and of its efficiency. If effort is observable by insurers, agents undertake the test only if the effort cost is neither too large nor too low. If the effort cost is not observable by insurers, moral hazard increases the value of the test if the effort cost is low. We offer several policy recommendations, from the optimal breadth of the tests to policies to do away with the discrimination risk.

Keywords: discrimination risk, informational value of test, personalized medicine

JEL Classification: D82, I18

Suggested Citation

Bardey, David and De Donder, Philippe, Genetic Testing with Primary Prevention and Moral Hazard (June 10, 2012). Documento CEDE No. 2012-10, Available at SSRN: https://ssrn.com/abstract=2104301 or http://dx.doi.org/10.2139/ssrn.2104301

David Bardey (Contact Author)

Universidad de los Andes, Colombia - Department of Economics ( email )

Carrera 1a No. 18A-10
Santafe de Bogota, AA4976
Colombia

Philippe De Donder

University of Toulouse 1 - Toulouse School of Economics (TSE) ( email )

Place Anatole-France
Toulouse Cedex, F-31042
France

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