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

Abstract

We develop a theoretical analysis of two widely used regulations of genetic tests, Disclosure Duty and Consent Law, and we run an experiment 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 insurers, exposing them to a discrimination risk. Consent law allows them to hide any detrimental information, resulting in adverse selection. The experiment results in much lower genetic tests take-up rates with Disclosure Duty than with Consent Law, showing that subjects are very sensitive to the discrimination risk. Under Consent Law, take-up rates increase with the adverse selection intensity. A decrease in the test cost, and in adverse selection intensity, both make it more likely that Consent Law is preferred to Disclosure Duty.

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Replaces

David Bardey, Philippe De Donder, and Cesar Mantilla, “How Is the Trade-off between Adverse Selection and Discrimination Risk Affected by Genetic Testing?: Theory and Experiment”, TSE Working Paper, n. 17-777, March 2017, revised July 2019.

Reference

David Bardey, Philippe De Donder, and Cesar Mantilla, “How is the Trade-off between Adverse Selection and Discrimination Risk Affected by Genetic Testing? Theory and Experiment”, Journal of Health Economics, vol. 68, December 2019, p. 102223.