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Is the Food And Drug Administration Safe And Effective?

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  • Tomas J. Philipson
  • Eric Sun

Abstract

In the United States, the Food and Drug Administration (FDA) provides public oversight of the safety and efficacy of drugs; medical devices; biologics like vaccines and blood products; cosmetics; radiation-emitting electronic products; veterinary products; and all foods, except meat and poultry (which are regulated by the Department of Agriculture). According to the FDA, the products it regulates account for more than one-fifth of U.S. consumer spending. In the area of medical products, the FDA is responsible for determining whether marketed products are both safe and effective before and after they have been marketed. In this paper, we will explore whether the policies of the agency itself are safe and effective. We stress two issues, one static and one dynamic. The static issue concerns the potential duplication inefficiency when product safety is protected not only by the FDA but also by the private sector through product liability law. Put another way, what is the rationale for using product liability and the FDA to regulate drug safety? While intuitively it may seem that two systems must be better than one in ensuring drug safety, each system comes with costs. We then turn to the dynamic issue, the speed-safety trade off, and consider the extent to which higher safety is achieved at a cost of later market entry of effective and even life-saving products. We assess the Prescription Drug User Fee Acts (PDUFAs), which increased the speed of the agency's regulatory process starting in 1992, although according to some, at the cost of reducing drug safety. We conclude by suggesting a research agenda for future work on the Food and Drug Administration.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/jep.22.1.85
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Bibliographic Info

Article provided by American Economic Association in its journal Journal of Economic Perspectives.

Volume (Year): 22 (2008)
Issue (Month): 1 (Winter)
Pages: 85-102

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Handle: RePEc:aea:jecper:v:22:y:2008:i:1:p:85-102

Note: DOI: 10.1257/jep.22.1.85
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References

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  1. Edward L. Glaeser & Andrei Shleifer, 2003. "The Rise of the Regulatory State," Journal of Economic Literature, American Economic Association, vol. 41(2), pages 401-425, June.
  2. Kevin M. Murphy & Robert H. Topel, 2006. "The Value of Health and Longevity," Journal of Political Economy, University of Chicago Press, vol. 114(5), pages 871-904, October.
  3. Viscusi, W. Kip, 2006. "Regulation of Health, Safety, and Environmental Risks," Working paper 307, Regulation2point0.
  4. Tomas J. Philipson & Anupam B. Jena, 2006. "Surplus Appropriation from R&D and Health Care Technology Assessment Procedures," NBER Working Papers 12016, National Bureau of Economic Research, Inc.
  5. Casey B. Mulligan & Andrei Shleifer, 2005. "The Extent of the Market and the Supply of Regulation," The Quarterly Journal of Economics, MIT Press, vol. 120(4), pages 1445-1473, November.
  6. Wiggins, Steven N, 1981. "Product Quality Regulation and New Drug Introductions: Some New Evidence from the 1970s," The Review of Economics and Statistics, MIT Press, vol. 63(4), pages 615-19, November.
  7. Spence, A Michael, 1977. "Consumer Misperceptions, Product Failure and Producer Liability," Review of Economic Studies, Wiley Blackwell, vol. 44(3), pages 561-72, October.
  8. Steven Shavell, 2005. "Liability for Accidents," NBER Working Papers 11781, National Bureau of Economic Research, Inc.
  9. Shavell, Steven, 2007. "Liability for Accidents," Handbook of Law and Economics, Elsevier.
  10. A. Mitchell Polinsky & William P. Rogerson, 1982. "Products Liability, Consumer Misperceptions, and Market Power," NBER Working Papers 0937, National Bureau of Economic Research, Inc.
  11. Grabowski, Henry G & Vernon, John M & Thomas, Lacy Glenn, 1978. "Estimating the Effects of Regulation on Innovation: An International Comparative Analysis of the Pharmaceutical Industry," Journal of Law and Economics, University of Chicago Press, vol. 21(1), pages 133-63, April.
  12. Manning, Richard L, 1997. "Products Liability and Prescription Drug Prices in Canada and the United States," Journal of Law and Economics, University of Chicago Press, vol. 40(1), pages 203-43, April.
  13. Manning, Richard L, 1994. "Changing Rules in Tort Law and the Market for Childhood Vaccines," Journal of Law and Economics, University of Chicago Press, vol. 37(1), pages 247-75, April.
  14. Grabowski, Henry G & Vernon, John M, 1992. "Brand Loyalty, Entry, and Price Competition in Pharmaceuticals after the 1984 Drug Act," Journal of Law and Economics, University of Chicago Press, vol. 35(2), pages 331-50, October.
  15. DiMasi, Joseph A. & Hansen, Ronald W. & Grabowski, Henry G., 2003. "The price of innovation: new estimates of drug development costs," Journal of Health Economics, Elsevier, vol. 22(2), pages 151-185, March.
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Cited by:
  1. Immordino, Giovanni & Pagano, Marco & Polo, Michele, 2011. "Incentives to innovate and social harm: Laissez-faire, authorization or penalties?," Journal of Public Economics, Elsevier, vol. 95(7-8), pages 864-876, August.
  2. Tomas J. Philipson & George Zanjani, 2013. "Economic Analysis of Risk and Uncertainty induced by Health Shocks: A Review and Extension," NBER Working Papers 19005, National Bureau of Economic Research, Inc.
  3. Mary Olson, 2013. "Eliminating the U.S. drug lag: Implications for drug safety," Journal of Risk and Uncertainty, Springer, vol. 47(1), pages 1-30, August.
  4. Clifford Winston, 2008. "The Efficacy of Information Policy: A Review of Archon Fung, Mary Graham, and David Weil's Full Disclosure: The Perils and Promise of Transparency," Journal of Economic Literature, American Economic Association, vol. 46(3), pages 704-17, September.

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