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

  • Michael Hoy

    ()

    (Department of Economics, University of Guelph)

  • Julia Witt

This paper is a contribution to the debate about whether regulations that ban insurance companies from access to individuals’ genetic tests may lead in the near to medium term future to substantial adverse selection costs. We choose the specific possibility of widespread knowledge based on genetic testing for the so-called breast cancer (BRCA1/2) genes. We use a data set including economic, demographic, and relevant family background information to simulate the market for 10-year term life insurance targeted at women aged 35 to 39. Using standard welfare economic analysis for various information and regulatory scenarios concerning genetic test results, we find generally only modest adverse selection costs associated with such a regulatory ban. However, for family background groups which are at high risk for carrying one of the BRCA1/2 genes, the efficiency cost of adverse selection may be significant especially if a large fraction of women within such groups were to obtain genetic test results. These results, therefore, suggest some caution in developing regulations which protect individuals’ genetic privacy.

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Paper provided by University of Guelph, Department of Economics and Finance in its series Working Papers with number 0505.

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Length: 58 pages
Date of creation: 2005
Date of revision:
Handle: RePEc:gue:guelph:2005-5
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Web page: https://www.uoguelph.ca/economics/

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  1. 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.
  2. Bossert, Walter & Fleurbaey, Marc, 2000. "Equitable Insurance Premium Schemes," Working Papers 2000-05, Rice University, Department of Economics.
  3. 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.
  4. Andrew B. Abel, 1985. "Capital Accumulation and Uncertain Lifetimes with Adverse Selection," NBER Working Papers 1664, National Bureau of Economic Research, Inc.
  5. Brugiavini, Agar, 1993. "Uncertainty resolution and the timing of annuity purchases," Journal of Public Economics, Elsevier, vol. 50(1), pages 31-62, January.
  6. 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.
  7. Villeneuve, Bertrand, 2000. "Life Insurance," Economics Papers from University Paris Dauphine 123456789/5369, Paris Dauphine University.
  8. 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.
  9. 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.
  10. 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.
  11. Wilson, Charles, 1977. "A model of insurance markets with incomplete information," Journal of Economic Theory, Elsevier, vol. 16(2), pages 167-207, December.
  12. 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.
  13. 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.
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