The biggest damage caused by inbreeding is an inevitable reduction in the effectiveness of the immune system. A mammal's immune system is an amazing, intricate, system designed to fight off every potential foreign invader. It is absolutely dependent on genetic diversity. When an animal has identical copies of its immune system genes, the immune system becomes limited in its ability to ward off disease. The end result is an animal that can fight off some diseases very well, but is extremely susceptible to others. This phenomenon is seen in both laboratory situations (there are lists for every inbred strain of mice of what diseases they can resist, and what ones they can't) and in the field in endangered species.
One set of genes whose function is critical for an animal to be able to fight off the variety of diseases that they may be exposed to is the MHC (major histocompatibility complex) genes. These are the genes that mark virtually all of an animals body cells to help the body's immune system distinguish itself from foreign invaders such as bacteria or viruses.
Aside from marking a body cell as "self" these genes provide another essential function. They bind to, and display any foreign molecule (or antigen) to the immune system. This antigen presentation is necessary for the immune system cells to see and respond to an invader. Unfortunately, every MHC protein can only bind to and/or display a selection of antigens. Fortunately we mammals have a number of MHC genes and many versions (or alleles) of each of these genes.
These genes are critical for immune system to differentiate yourself from foreign objects, and for displaying foreign antigens to your immune system. Diversity in these genes is probably essential for a species to survive the variety of disease causing organisms that they may be exposed to.
Let's use a simplified example here. Assume that there are 2 MHC genes, and each has 5 alleles. This can produce a total of 225 different genotypes! AND in fact, in humans there are at least 9 separate MHC class I genes and a bunch more class II genes let alone class III. So far in the 3 most easily studied class I genes, one has 37 alleles, another has 59 alleles and the third 111 alleles discovered so far! This leads to a huge diversity of immune system capabilities in the population as a whole (Kuby, Janis "Immunology" 3rd edition 1997 W.H.Freeman , NY)
This huge variety allows our body cells to respond to a huge variety of antigens, and thus to be able to fight off a wide variety of diseases. An additional benefit of this system is that with the huge variety of MHC genes, chances are that in a given family, mom has one set of genes and alleles, dad a completely different set, and that all the kids each have a unique combination. This way, if a given disease manages to circumvent one family memberís immune system, it may not be able to do so with the other family members.
When an animal is highly inbred, the number of these variations drops dramatically. In our original simplified case of two genes with 5 alleles each, a highly inbred animal would be homozygous for both genes and would make only two MHC molecules. To make matters worse, all of the animals in the inbred group have the same two, so if one animal can't respond to a disease immunologically, none of them can!
An example of the results of lack of immune system diversity can be seen in inbred laboratory strains of mice. (next)
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@Heather E. Lorimer, Ph.D.