DP6047 Genetic Tests and Intertemporal Screening in Competitive Insurance Markets

Author(s): Winand Emons
Publication Date: January 2007
Keyword(s): genetic tests, insurance, pooling, screening
JEL(s): D82, G22
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=6047

We consider successive generations of non-altruistic individuals carrying a good or bad gene. Daughters are more likely to carry their mother's gene than the opposite one. Competitive insurers can perform a genetic test revealing an agent's gene. They may condition their quotes on the agent's or on her ancestors' genetic status. In equilibrium generation one is bribed to take the test with an unconditional quote. The insurer uses this information to profitably screen a finite number of generations of their offspring. The offspring of good gene carriers subsidize the tested generation.