Genetic testing in competitive insurance markets with repulsion from chance: a welfare analysis.

A central theme in the international debate on genetic testing concerns the extent to which insurance companies should be allowed to use genetic information when offering insurance contracts. We provide a welfare analysis of this issue within a model of an insurance market with asymmetric information, having the following crucial feature: in addition to a state-contingent consumption profile, a person's well-being depends on her attitude towards resolution of future health uncertainty, and this attitude varies across the population. We present stylized facts that motivate this approach. In the formal analysis, we find that both tested high-risks and untested individuals are equally well off whether or not test results can be used by insurers. Individuals who test for being low-risks, on the other hand, are made worse off by not being able to verify this to insurers. This implies that, in terms of welfare, a regulatory regime in which the use of genetic information by insurers is allowed is better than one in which it is not allowed.