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Genetic testing, income distribution and insurance markets, CHERE Working Paper 2006/3

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Author Info

  • Ray Rees

    (Univerity of Munich)

  • Patricia Apps

    ()
    (Univerity of Sydney)

Abstract

This paper analyses the policy implications for health insurance markets of the development of genetic testing. A central issue surrounding this development is whether insurers should be allowed access to the information provided by such tests. The paper first shows that on efficiency grounds alone, insurance buyers should be allowed voluntarily to supply this information to insurers. The source of the considerable opposition to this proposal is really the distributional implications: those with the worst genetic endowments will as a result have to pay the highest insurance premiums. The paper then goes on to analyse possible redistributional policies that can remedy this. In doing so, it makes a significant departure from the mainstream literature on adverse selection in insurance markets, by assuming that individuals have differing income endowments.

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File URL: http://www.chere.uts.edu.au/pdf/insurance.pdf
File Function: First version, 2006
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Bibliographic Info

Paper provided by CHERE, University of Technology, Sydney in its series Working Papers with number 2006/3.

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Date of creation: Jul 2006
Date of revision:
Handle: RePEc:her:chewps:2006/3

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Keywords: health insurance; genetic testing;

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References

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  1. Harris Milton & Townsend, Robert M, 1981. "Resource Allocation under Asymmetric Information," Econometrica, Econometric Society, vol. 49(1), pages 33-64, January.
  2. Cutler, David M. & Zeckhauser, Richard J., 2000. "The anatomy of health insurance," Handbook of Health Economics, in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 11, pages 563-643 Elsevier.
  3. Crocker, Keith J. & Snow, Arthur, 1992. "The social value of hidden information in adverse selection economies," Journal of Public Economics, Elsevier, vol. 48(3), pages 317-347, August.
  4. Michael Smart, 1996. "Competitive Insurance Markets with Two Unobservables," Working Papers msmart-96-01, University of Toronto, Department of Economics.
  5. Tabarrok, Alexander, 1994. "Genetic testing: An economic and contractarian analysis," Journal of Health Economics, Elsevier, vol. 13(1), pages 75-91, March.
  6. Michael Hoy & Fabienne Orsi & Fran�ois Eisinger & Jean Paul Moatti, 2003. "The Impact of Genetic Testing on Healthcare Insurance," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan, vol. 28(2), pages 203-221, April.
  7. Hoy, Michael, 1982. "Categorizing Risks in the Insurance Industry," The Quarterly Journal of Economics, MIT Press, vol. 97(2), pages 321-36, May.
  8. David M. Cutler & Richard J. Zeckhauser, 1997. "Adverse Selection in Health Insurance," NBER Working Papers 6107, National Bureau of Economic Research, Inc.
  9. Rothschild, Michael & Stiglitz, Joseph E, 1976. "Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information," The Quarterly Journal of Economics, MIT Press, vol. 90(4), pages 630-49, November.
  10. 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.
  11. 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.
  12. Hoy, Michael, 1989. "The value of screening mechanisms under alternative insurance possibilities," Journal of Public Economics, Elsevier, vol. 39(2), pages 177-206, July.
  13. Hirshleifer, Jack, 1971. "The Private and Social Value of Information and the Reward to Inventive Activity," American Economic Review, American Economic Association, vol. 61(4), pages 561-74, September.
  14. Wilson, Charles, 1977. "A model of insurance markets with incomplete information," Journal of Economic Theory, Elsevier, vol. 16(2), pages 167-207, December.
  15. 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.
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Cited by:
  1. Bardey, David & De Donder, Philippe, 2012. "Genetic testing with primary prevention and moral hazard," CEPR Discussion Papers 8977, C.E.P.R. Discussion Papers.
  2. Kesternich, Iris & Schumacher, Heiner, 2009. "On the Use of Information in Repeated Insurance Markets," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 280, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.

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