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Genetic testing with primary prevention and moral hazard

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  • David Bardey

    ()

  • Philippe De Donder

Abstract

Abstract:We develop a model where a free genetic test reveals whether the individual tested has a low or high probability of developing a disease. A costly prevention effort allows high-risk agents to decrease the probability of developing the disease. Agents are not obliged to take the test, but must disclose its results to insurers. Insurers offer separating contracts which take into account the individual risk, so that 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. We obtain that, 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, they face a moral hazard problem which induces them to under-provide insurance. We obtain the counter intuitive result that moral hazard increases the value of the test if the effort cost is low enough. Also, agents may perform the test for lower levels of prevention efficiency when effort is not observable.

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Bibliographic Info

Paper provided by UNIVERSIDAD DEL ROSARIO in its series DOCUMENTOS DE TRABAJO with number 009083.

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Length: 56
Date of creation: 31 Oct 2011
Date of revision:
Handle: RePEc:col:000092:009083

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Keywords: discrimination risk; informational value of test; personalized medecine.;

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  1. Hoel, Michael & Iversen, Tor & Nilssen, Tore & Vislie, Jon, 2006. "Genetic testing in competitive insurance markets with repulsion from chance: A welfare analysis," Journal of Health Economics, Elsevier, vol. 25(5), pages 847-860, September.
  2. Strohmenger, R. & Wambach, A., 2000. "Adverse selection and categorical discrimination in the health insurance markets: the effects of genetic tests," Journal of Health Economics, Elsevier, vol. 19(2), pages 197-218, March.
  3. Michael Hoel & Tor Iversen, 2001. "Genetic Testing When There is a Mix of Compulsory and Voluntary Health Insurance," CESifo Working Paper Series 495, CESifo Group Munich.
  4. Cochrane, John H, 1995. "Time-Consistent Health Insurance," Journal of Political Economy, University of Chicago Press, vol. 103(3), pages 445-73, June.
  5. DIONNE, George & EECKHOUDT, Louis, . "Self-insurance, self-protection and increased risk aversion," CORE Discussion Papers RP -623, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  6. Ray REES & Patricia APPS, 2006. "Genetic testing, income distribution and insurance Markets," Annales d'Economie et de Statistique, ENSAE, issue 83-84, pages 353-368.
  7. Hoy, Michael & Polborn, Mattias, 2000. "The value of genetic information in the life insurance market," Journal of Public Economics, Elsevier, vol. 78(3), pages 235-252, November.
  8. Dhaval Dave & Robert Kaestner, 2009. "Health insurance and ex ante moral hazard: evidence from Medicare," International Journal of Health Care Finance and Economics, Springer, vol. 9(4), pages 367-390, December.
  9. Francesca Barigozzi & Dominique Henriet, 2011. "Genetic Information: Comparing Alternative Regulatory Approaches When Prevention Matters," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 13(1), pages 23-46, 02.
  10. Shavell, Steven, 1979. "On Moral Hazard and Insurance," The Quarterly Journal of Economics, MIT Press, vol. 93(4), pages 541-62, November.
  11. Doherty, Neil A. & Thistle, Paul D., 1996. "Adverse selection with endogenous information in insurance markets," Journal of Public Economics, Elsevier, vol. 63(1), pages 83-102, December.
  12. Lilia Filipova & Michael Hoy, 2009. "Impact of Genetic Testing on Surveillance and Prevention," Working Papers 0904, University of Guelph, Department of Economics and Finance.
  13. Ray Rees & Patricia Apps, 2006. "Genetic testing, income distribution and insurance markets, CHERE Working Paper 2006/3," Working Papers 2006/3, CHERE, University of Technology, Sydney.
  14. Bardey, David & Lesur, Romain, 2005. "Optimal health insurance contract: Is a deductible useful?," Economics Letters, Elsevier, vol. 87(3), pages 313-317, June.
  15. Tabarrok, Alexander, 1994. "Genetic testing: An economic and contractarian analysis," Journal of Health Economics, Elsevier, vol. 13(1), pages 75-91, March.
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Cited by:
  1. Simeon Schudy & Verena Utikal, 2012. "The Influence of (Im)perfect Data Privacy on the Acquisition of Personal Health Data," TWI Research Paper Series 76, Thurgauer Wirtschaftsinstitut, Universität Konstanz.
  2. Johan N.M. Lagerlöf & Christoph Schotmüller, 2013. "Monopoly Insurance with Endogenous Information," Discussion Papers 13-15, University of Copenhagen. Department of Economics.
  3. Goulão, Catarina & Thibault, Emmanuel, 2013. "Physical Activity and Policy Recommendations: a Social Multiplier Approach," TSE Working Papers 13-414, Toulouse School of Economics (TSE).
  4. Filipova-Neumann, Lilia & Hoy, Michael, 2014. "Managing genetic tests, surveillance, and preventive medicine under a public health insurance system," Journal of Health Economics, Elsevier, vol. 34(C), pages 31-41.

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