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Welfare Effects of Banning Genetic Information in the Life Insurance Market: The Case of BRCA1/2 Genes

  • Michael Hoy
  • Julia Witt

We investigate whether regulations that ban insurance companies from access to individuals' genetic tests are likely to lead to substantial adverse selection costs for the specific example of the so-called breast cancer (BRCA1/2) genes. Using a data set including economic, demographic, and relevant family background information to simulate the market for 10-year term life insurance, we find generally only modest adverse selection costs associated with such a regulatory ban. However, for family background groups that are at high risk for carrying one of these genes, the efficiency cost of adverse selection may be significant should the test become widely adopted. Copyright The Journal of Risk and Insurance, 2007.

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Article provided by The American Risk and Insurance Association in its journal Journal of Risk & Insurance.

Volume (Year): 74 (2007)
Issue (Month): 3 ()
Pages: 523-546

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Handle: RePEc:bla:jrinsu:v:74:y:2007:i:3:p:523-546
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  1. Crocker, Keith J & Snow, Arthur, 1986. "The Efficiency Effects of Categorical Discrimination in the Insurance Industry," Journal of Political Economy, University of Chicago Press, vol. 94(2), pages 321-44, April.
  2. Andrew B. Abel, 1985. "Capital Accumulation and Uncertain Lifetimes with Adverse Selection," NBER Working Papers 1664, National Bureau of Economic Research, Inc.
  3. Villeneuve, Bertrand, 2000. "Life Insurance," Economics Papers from University Paris Dauphine 123456789/5369, Paris Dauphine University.
  4. Marc Fleurbaey & Walter Bossert, 2002. "Equitable insurance premium schemes," Social Choice and Welfare, Springer, vol. 19(1), pages 113-125.
  5. Michael Hoy, 1984. "The Impact of Imperfectly Categorizing Risks on Income Inequality and Social Welfare," Canadian Journal of Economics, Canadian Economics Association, vol. 17(3), pages 557-68, August.
  6. Blake, David, 1996. "Efficiency, Risk Aversion and Portfolio Insurance: An Analysis of Financial Asset Portfolios Held by Investors in the United Kingdom," Economic Journal, Royal Economic Society, vol. 106(438), pages 1175-92, September.
  7. Tomas Philipson & John Cawley, 1999. "An Empirical Examination of Information Barriers to Trade in Insurance," American Economic Review, American Economic Association, vol. 89(4), pages 827-846, September.
  8. Gabriel Picone & Frank Sloan & Donald Taylor, 2004. "Effects of Risk and Time Preference and Expected Longevity on Demand for Medical Tests," Journal of Risk and Uncertainty, Springer, vol. 28(1), pages 39-53, January.
  9. Mark V. Pauly & Kate H. Withers & Krupa Subramanian-Viswana & Jean Lemaire & John C. Hershey, 2003. "Price Elasticity of Demand for Term Life Insurance and Adverse Selection," NBER Working Papers 9925, National Bureau of Economic Research, Inc.
  10. 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.
  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. Brugiavini, Agar, 1993. "Uncertainty resolution and the timing of annuity purchases," Journal of Public Economics, Elsevier, vol. 50(1), pages 31-62, January.
  13. Wilson, Charles, 1977. "A model of insurance markets with incomplete information," Journal of Economic Theory, Elsevier, vol. 16(2), pages 167-207, December.
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