Adverse Selection vs Discrimination Risk with Genetic Testing. An Experimental Approach

40 Pages Posted: 2 Dec 2014

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)

Cesar Mantilla

Universidad del Rosario; Institute for Advanced Study in Toulouse

Date Written: November 28, 2014

Abstract

We develop a theoretical analysis of two widely used regulations of genetic tests, disclosure duty and consent law, and we run several experiments in order to shed light on both the take-up rate of genetic testing and on the comparison of policyholders’ welfare under the two regulations. Disclosure Duty forces individuals to reveal their test results to their insurers, exposing them to the risk of having to pay a large premium in case they are discovered to have a high probability of developing a disease (a discrimination risk). Differently, Consent Law allows them to hide this detrimental information, creating asymmetric information and adverse selection. We obtain that the take-up rate of the genetic test is low under Disclosure Duty, larger and increasing with adverse selection under Consent Law. Also, the fraction of individuals who are prefer Disclosure Duty to Consent Law increases with the amount of adverse selection under the latter. These results are obtained for exogenous values of adverse selection under Consent Law, and the repeated interactions experiment devised has not resulted in convergence towards an equilibrium level of adverse selection.

Keywords: disclosure duty, consent law, discrimination risk, informational value of test, personalized medicine, experiment

JEL Classification: D82, I18, C91

Suggested Citation

Bardey, David and De Donder, Philippe and Mantilla, Cesar, Adverse Selection vs Discrimination Risk with Genetic Testing. An Experimental Approach (November 28, 2014). CESifo Working Paper Series No. 5080, Available at SSRN: https://ssrn.com/abstract=2532921

David Bardey

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

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

Philippe De Donder (Contact Author)

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

Place Anatole-France
Toulouse Cedex, F-31042
France

Cesar Mantilla

Universidad del Rosario ( email )

Casa Pedro Fermín
Calle 14 # 4-69
Bogota, 110231
Colombia

HOME PAGE: http://www.urosario.edu.co/Profesores/Listado-de-profesores/M/Mantilla-Ribero-Cesar/

Institute for Advanced Study in Toulouse ( email )

31015 Toulouse, Cedex 6
France

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