Working Paper: NBER ID: w29574
Authors: Casey B. Mulligan
Abstract: This paper revisits Peltzman (1973) in light of two recent opportunities to quantitatively assess tradeoffs in drug regulation. First, reduced regulatory barriers to drug manufacturing associated with the 2017 reauthorization of Generic Drug User Fee Amendments were followed by significantly more entry and lower consumer prices for prescription drugs. Using a simple and versatile industry model and historical data on entry, I find that easing generic restrictions discourages innovation, but this welfare cost is more than offset by consumer benefits from enhanced competition, especially after 2016. Second, accelerated vaccine approval in 2020 had unprecedented net benefits as it not only improved health but substantially changed the trajectory of the wider economy. The evidence suggests that cost-benefit analysis of FDA regulation is incomplete without accounting for substitution toward potentially unsafe and ineffective treatments that are both outside FDA jurisdiction and heavily utilized prior to FDA approval. Moreover, the policy processes initiating these 21st century regulatory changes show a clear influence of Peltzman’s 1973 findings.
Keywords: No keywords provided
JEL Codes: I18; L51; L65; O31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| easing generic restrictions (D50) | innovation in drug development (O35) |
| easing generic restrictions (D50) | consumer benefits (D18) |
| accelerated vaccine approval (I19) | health outcomes and economic trajectory (I15) |
| easing generic restrictions (D50) | drug prices (P22) |
| easing generic restrictions (D50) | market dynamics of drug entry and pricing (D49) |