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Genetic testing with primary prevention and moral hazard

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  • David Bardey
  • Philippe De Donder

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.

Suggested Citation

  • David Bardey & Philippe De Donder, 2011. "Genetic testing with primary prevention and moral hazard," Documentos de Trabajo 9083, Universidad del Rosario.
    • Handle: RePEc:col:000092:009083
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    File URL: http://repository.urosario.edu.co/bitstream/handle/10336/10955/9083.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    discrimination risk; informational value of test; personalized medecine.;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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