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

82 Pages Posted: 24 Mar 2016 Last revised: 4 Aug 2020

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)

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Date Written: June 29, 2019

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.

Keywords: Regulation, Innovation, Information

Suggested Citation

Grennan, Matthew and Town, Robert J., Regulating Innovation with Uncertain Quality: Information, Risk, and Access in Medical Devices (June 29, 2019). The Wharton School Research Paper No. 87, Available at SSRN: https://ssrn.com/abstract=2753162

Matthew Grennan (Contact Author)

University of Pennsylvania - The Wharton School ( email )

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HOME PAGE: http://www.wharton.upenn.edu/faculty/grennan.cfm

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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