Basing insurance prices on the results of an imperfect screening test to identify risk types can reduce or increase aggregate discrimination across insureds. We present a powerful and general new framework of analysis to examine this issue, rawing upon recent work which uses decomposable inequality indices to measure vertical and horizontal inequity in taxation. We find that, whilst improved test performance inevitably reduces vertical discrimination (in the average prices faced by different risk types), even very accurate tests can lead to substantial horizontal discrimination (within risk types) and enhanced overall discrimination. These conclusions are shown to be robust to a range of different value judgements about how to aggregate individual discriminatory effects and to be particularly relevant to the case of genetic screening
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Paper provided by Department of Economics, University of York in its series Discussion Papers with number
99/25.
Length: Date of creation: Date of revision: Handle: RePEc:yor:yorken:99/25
Contact details of provider: Postal: Department of Economics and Related Studies, University of York, York, YO10 5DD, United Kingdom Phone: (0)1904 433776 Fax: (0)1904 433759 Email: Web page: http://www.york.ac.uk/depts/econ/ More information through EDIRC
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References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Cowell, F.A., 2000.
"Measurement of inequality,"
Handbook of Income Distribution,
in: A.B. Atkinson & F. Bourguignon (ed.), Handbook of Income Distribution, edition 1, volume 1, chapter 2, pages 87-166
Elsevier.
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