Personalized Medicine, Prevention Effort and Adverse Selection
David Bardey (University of Los Andes, Bogota)
Philippe De Donder (ESG - UQAM)

Abstract : We study the consequences of personalized medicine (defined as the use of personal genetic characteristics for medical purposes) in a context where some people are more precisely informed about their individual probability of developing a disease than others, and where individuals freely choose whether to reveal this more precise information to insurers or not (so-called “consent law” legislation). In our model, this information is helpful to tailor some prevention effort in order to decrease the probability of developing the disease (primary prevention). We study the equilibrium insurance contracts offered by a competitive fringe of insurers when the prevention effort is observable and contractible, and when an exogenous fraction of individuals has performed the genetic test. Our main objective is to understand the type of insurance contract offered at equilibrium (pooling or separating) as a function of the fraction of individuals who take a genetic test, and of the cost of the prevention effort. Our secondary objective is to study, in the case of separating contracts, whether the separation of types according to their risk is made by under-providing insurance to the low risks, and/or by forcing them to change their level of prevention effort.

A Rationale for Marriage
Yoram Barzel (University of Washington)
Aurora Stephany (University of Washington)
Qing Zhang (University of Washington)

Abstract : We argue that the rationale for marriage is to provide paternity assurance so that men have an incentive to contribute to the upbringing of the children. Without the prospect of material support, women will simply seek the highest standing man they can reach to father their children. The society will then be similar to that of sea lions or chimpanzees. However, material support enhances the survival of children; an arrangement that creates incentives for males to provide support is likely to benefit the survival of the species. We propose that the institution of marriage, along with the constraints it imposes on women, serve the purpose of assuring paternity so that men are willing to spend resources on their offspring. We conduct two empirical tests for the hypothesis. The first one relates to the ease of determining paternity and the constraints on the wives. Our hypothesis predicts that the easier it is to determine paternity, the fewer the constraints. The emergence of genetic paternity tests offers an opportunity to test this implication. We show that states that accepted genetic testing as a legally valid way of establishing paternity early experienced an increase in women’s labor participation sooner than states that initially ignored the new technology. Our second test compares the relative achievement of children of intentional single mothers with that of children of unintentional single mothers. A clear implication of our hypothesis is that women who plan to be single mothers will seek men of higher standings than them, while women who plan to marry in order to obtain support will marry men of the same standings as them. And we expect that children of the two groups of women will perform differently. We show that the children of intentional single mothers outperform their mothers by a greater magnitude than do the children of unintentional single mothers, as predicted by our hypothesis.

Why Transaction History Matters? Disentangling Effects of Routinization and Adaptation of Repeat Exchange Experiences
Jiao Luo (University of Minnesota)
Paul Ingram (Columbia University)

Abstract : Whether a history of transactions between buyer and supplier produces routinization benefits and/or adaptive benefits is a question of great relevance for understanding transaction performance, firm performance, and innovation. We theoretically delineate the differences between routinization and adaptation benefits of transaction history, and develop discriminating predictions that distinguish the two. We examine these predictions using an unusually detailed data set on transaction outcomes for a prominent producer in a historically significant industry. We find that repeat transactions produced overall efficiencies for the producer and its buyers, in the form of lower production costs and lower transaction costs. Our results also support the idea that repeat-transactions between buyer and supplier are adaptive, producing benefits not only for doing the same things again and again, but for doing new things. We discuss how the strategic capability of a firm depends on its history.