Peltzman Revisited: Quantifying 21st Century Opportunity Costs of FDA Regulation

47 Pages Posted: 27 Dec 2021

See all articles by Casey B. Mulligan

Casey B. Mulligan

University of Chicago; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: December 20, 2021

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.

JEL Classification: I18,L51,L65,O31

Suggested Citation

Mulligan, Casey B., Peltzman Revisited: Quantifying 21st Century Opportunity Costs of FDA Regulation (December 20, 2021). University of Chicago, Becker Friedman Institute for Economics Working Paper No. 2021-145, Available at SSRN: https://ssrn.com/abstract=3990140 or http://dx.doi.org/10.2139/ssrn.3990140

Casey B. Mulligan (Contact Author)

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