Whether it be on The Jeremy Kyle Show or Jurassic Park, we’ve all been intrigued by DNA and the process of genetic testing. In real life, though, the general population’s main contact with this branch of scientific technology comes from a desire to learn more about themselves through their lineage and ancestry. Companies such as FamilyTreeDNA, which use this good, are of special interest to economists due to their impact being felt by ‘third parties’ (those who are neither the seller nor the buyer). These impacts are called ‘externalities’ and can have a positive or negative impact on those third parties. In this blog, we will consider these, and then other concerns and consequences from the more widespread usage of this fascinating tech, in order to inform you of the effect it might have on you and your loved ones lives.
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Positive
Externalities:
Have you ever wondered how law enforcement can
place a criminal at the scene of a crime or how individuals prone to diseases
can avoid the disease itself? Well, the answer to those questions can be found
through genetic testing services such as 23andMe or AncestryDNA, which have
over 26 million customers (Regalado, 2019). The companies can produce those
desirable positive externalities when an individual pays to access their
personal genetic information, and that information can be used to benefit other
people too.
Suppose a mother uses AncestryDNA and finds
out that she has the BRCA1 gene. Not only can she begin early and regular
testing, but so can her children. This is a positive externality, as her use of
genetic testing services is allowing third parties (e.g., her children) to live
a healthier, possibly longer life. In addition, the data can be used by medical
professionals to discover new treatments for the entire population. Figure 1
below shows the projected contribution of such services to precision medicine
worldwide (Mikulic, 2025).
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A key example is in the case of the Golden
State Killer, who committed murder and rape yet evaded capture for decades. Law
enforcement used a public genealogy database (GEDMatch) to match DNA from crime
scenes to relatives of the victims (Lewis, 2018). This led to his arrest and
imprisonment. Thus, while the individuals uploaded their information to gain
insight on family history, they inadvertently ended up preventing future crimes
– a clear positive externality, as all of society benefitted from his
imprisonment, but we didn’t pay a thing!
Negative
Externalities:
Unfortunately, in the case of genetic testing,
negative externalities are a huge risk. They can principally occur through data
breaches or when genetic testing companies profit by selling your DNA data to
drug researchers (often without clear consent). For example, in 2022, hackers
stole 7 million users’ genetic data from 23andMe and sold it for $1 to $10 per
account (Helmore, 2023). One year later, the same firm admitted sharing data
with over 30 pharmaceutical firms (Mahatole & Satija, 2025).
In these instances, the consumers bore the
costs of privacy risks, similar to how a factory might emit toxins in the air
or water without having to pay for it (DeGeurin, 2024). This leads to negative
externalities in production, whereby the damages are not reflected in the total
cost. Under these conditions, firms are not paying the full cost of the harm
caused to consumers or society in general.
Genetic testing can also manifest as a
negative externality in consumption. For instance, in genetic discrimination.
In 2023, an Australian man was denied updating his insurance policy, and one of
his relatives was denied life insurance, despite there being a moratorium
preventing insurers from using genetic data for claims under $500,000
(Messenger, 2024). This inadequate insurance provision had a detrimental impact
on the man’s relative, an uninvolved third party.
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Market
Distortions:
It is not just negative externalities that are
worth considering, though. The advent of genetic testing has the potential to
influence the market in a variety of intriguing ways. Here are three key market
distortions to be wary of:
(1) Adverse Selection: Genetic discrimination
doesn’t only produce negative externalities. The USA’s Genetic Information
Non-discrimination Act of 2008 explicitly exempts life, disability, and
long-term care insurance from its protections (Brown, 2024). This means many
are hesitant to share genetic data with insurers, creating an information
imbalance. As a result, there are more people with unfavourable genetic markers
in the insurance pool than accounted for, which can destabilise the market.
(2) Moral Hazard: As a reflection of adverse
selection, moral hazard has the potential to occur when individuals with
‘favourable' genes engage in riskier lifestyle choices, such as smoking, under
the assumption they’re protected from illness — similar to how banks in the
mid-2000s felt able to give risky loans due to the likely government bailout. A
clean genetic bill of health could encourage similar risky behaviour, driving
up long-term healthcare costs.
(3) Market Signalling: The potential for
screening IVF embryos is concerning too. Although identifying potential health
risks sounds beneficial, worries about eugenics are validated — will some
parents choose against a child with Down syndrome, for example, and what are
the moral implications of that? Another controversial application of market
signalling in the genetics realm is Israel’s ‘Law of Return’ policy, where
detection of Jewish heritage can lead to citizenship, but in practice
discrimination can occur, for example between different branches of Judaism
(Chernick, 2017).
Final Remarks:
Now that you have explored a small part of the
weird and wonderful world of genetic testing, you might be curious about what
the future holds for this unique technology. Hopefully its vulnerability to
market failures and exploitation by nefarious actors can be partially addressed
by the advent of blockchain technology. Or perhaps stronger anti-discrimination
laws will protect us from exploitation. What we can be sure of, however, is
that the balancing of regulation and innovation is key to ensuring genetic testing
is a force for good and that you reading this blog definitely has positive
externalities!
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Bibliography:
Brown, K. (2024) Genetic Discrimination Is
Coming for Us All, The Atlantic [Online] Available at: https://www.theatlantic.com/health/archive/2024/11/dna-genetic-discrimination-insurance-privacy/680626/
Chernick, I. (2017) Should Jewishness be
determined by a genetic test? The Jerusalem Post [Online] Available at: https://www.jpost.com/magazine/should-jewishness-be-determined-by-a-genetic-test-514968
DeGeurin, M. (2024) Hackers got nearly 7
million people’s data from 23andMe. The firm blamed users in ‘very dumb’ move, The
Guardian [Online] Available at: https://www.theguardian.com/technology/2024/feb/15/23andme-hack-data-genetic-data-selling-response
Helmore, E. (2023) Genetic testing firm
23andMe admits hackers accessed DNA data of 7m users, The Guardian
[Online] Available at: https://www.theguardian.com/technology/2023/dec/05/23andme-hack-data-breach
Lewis, R. (2018). Genetic Privacy and the
Case of the Golden State Killer—Diving into the Science, Office of Justice
Programs [Online] Available at: https://www.ojp.gov/ncjrs/virtual-library/abstracts/genetic-privacy-and-case-golden-state-killer-diving-science.
Mahatole, S. & Satija, B. (2025) Consumers
urged to delete 23andMe data as bankruptcy sparks privacy fears, Reuters
[Online] Available at: https://www.reuters.com/business/healthcare-pharmaceuticals/new-york-attorney-general-urges-23andme-users-delete-their-data-2025-03-25/
Messenger, A (2024) **Some say it’s ‘genetic
discrimination’, but insurance companies are fighting for access to these test
results, The Guardian [Online] Available at: https://www.theguardian.com/australia-news/article/2024/may/12/life-insurance-industry-customers-genetic-tests-ban?utm_source=chatgpt.com
Mikulic, M. (2025). Share of genetic tests
for precision medicine globally 2027 | Statista, Statista [Online]
Available at: https://www.statista.com/statistics/1420907/share-of-genetic-tests-used-for-precision-medicine-globally/
Regalado, A. (2019) 'More than 26 million
people have taken an at-home ancestry test', MIT Technology Review
[Online] Available at https://www.technologyreview.com/2019/02/11/103446/more-than-26-million-people-have-taken-an-at-home-ancestry-test/
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