Working Paper: CEPR ID: DP6047
Authors: Winand Emons
Abstract: 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.
Keywords: genetic tests; insurance; pooling; screening
JEL Codes: D82; G22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| availability of genetic tests (C12) | insurers condition quotes on genetic status of the first generation (G52) |
| insurers condition quotes on genetic status of the first generation (G52) | quotes for subsequent generations (D15) |
| genetic status of parents (J12) | insurance premiums charged to their children (G52) |
| insurers bribe the first generation to take the test (G22) | profitable screening of their offspring (J78) |
| offspring of good gene carriers (J11) | better rates than those of bad gene carriers (D15) |
| offspring of good gene carriers subsidize the tested generation (D15) | lower premiums for the tested generation (G52) |
| offspring of bad gene carriers (I12) | higher premiums reflecting increased risk (G22) |