Innovation Under Regulatory Uncertainty: Evidence from Medical Technology

Stern, A.D., Innovation under Regulatory Uncertainty: Evidence from Medical Technology, Journal of Public Economics. Final version published online: 06-Dec-2016. DOI information: 10.1016/j.jpubeco.2016.11.010

Journal of Public Economics, Vol. 145, 2017

20 Pages Posted: 17 Oct 2016 Last revised: 13 Aug 2018

Date Written: September 30, 2016

Abstract

This paper explores how the regulatory approval process affects innovation incentives in medical technologies. Prior studies have found early mover regulatory advantages for drugs. I find the opposite for medical devices, where pioneer entrants spend 34 percent (7.2 months) longer than follow-on entrants in regulatory approval. Back-of-the-envelope calculations suggest that the cost of a delay of this length is upwards of 7 percent of the total cost of bringing a new high-risk device to market. Considering potential explanations, I find that approval times are largely unrelated to technological novelty, but are meaningfully reduced by the publication of objective regulatory guidelines. Finally, I consider how the regulatory process affects small firms' market entry patterns and find that small firms are less likely to be pioneers in new device markets, a fact consistent with relatively higher costs of doing so for more financially constrained firms.

Keywords: Regulation, Innovation, FDA, Medical Devices

JEL Classification: I1, K2, L5, O3

Suggested Citation

Stern, Ariel Dora, Innovation Under Regulatory Uncertainty: Evidence from Medical Technology (September 30, 2016). Stern, A.D., Innovation under Regulatory Uncertainty: Evidence from Medical Technology, Journal of Public Economics. Final version published online: 06-Dec-2016. DOI information: 10.1016/j.jpubeco.2016.11.010, Journal of Public Economics, Vol. 145, 2017, Available at SSRN: https://ssrn.com/abstract=2853173 or http://dx.doi.org/10.2139/ssrn.2853173

Ariel Dora Stern (Contact Author)

Harvard Business School ( email )

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Harvard Business School
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