Regulating Innovation with Uncertain Quality: Information, Risk, and Access in Medical Devices

79 Pages Posted: 2 Mar 2015 Last revised: 7 Mar 2015

See all articles by Matthew Grennan

Matthew Grennan

University of Pennsylvania - The Wharton School; National Bureau of Economic Research (NBER)

Robert J. Town

National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: February 2015

Abstract

We study the impact of regulating product entry and quality information requirements on an oligopoly equilibrium and consumer welfare. Product testing can reduce consumer uncertainty, but also increase entry costs and delay entry. Using variation between EU and US medical device regulations, we document patterns consistent with valuable learning from more stringent US requirements. To derive welfare implications, we pair the data with a model of supply, demand, and testing regulation. US policy is indistinguishable from the policy that maximizes total surplus in our estimated model, while the EU could benefit from more testing. “Post-market surveillance” could further increase surplus.

Suggested Citation

Grennan, Matthew and Town, Robert J., Regulating Innovation with Uncertain Quality: Information, Risk, and Access in Medical Devices (February 2015). NBER Working Paper No. w20981, Available at SSRN: https://ssrn.com/abstract=2572140

Matthew Grennan (Contact Author)

University of Pennsylvania - The Wharton School ( email )

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National Bureau of Economic Research (NBER) ( email )

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Robert J. Town

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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