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Regulatory Reform and Bureaucratic Responsiveness to Firms: the Impact of User Fees in the FDA

  • Mary K. Olson

This paper examines the impact of user fees on the speed of new-drug review and on the responsiveness of FDA reviewers to pharmaceutical firms. User fees are expected to alter FDA behavior and responsiveness to pharmaceutical firms because they give regulators a financial incentive to process more new-drug applications and because they convey information to regulators that may reduce type I error. The analysis examines the variation in FDA review times for new drugs approved between 1990 and 1995 as a function of differences that exist among firms and drugs. Specifically, it compares estimates of regulator responsiveness to several firm and drug characteristics before and after the introduction of user fees. The results show that user fees produced a significant change in FDA behavior. Regulators have become less responsive to the differences among firms since the introduction of user fees, which suggests that the reform has led to more equity in the new-drug review process. In addition, the FDA has expedited the review of new drugs, especially the most therapeutically novel drugs, which suggests that politicians have been fairly successful in designing a reform to realign regulatory incentives in the FDA. Copyright (c) 2000 Massachusetts Institute of Technology.

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Article provided by Wiley Blackwell in its journal Journal of Economics & Management Strategy.

Volume (Year): 9 (2000)
Issue (Month): 3 (06)
Pages: 363-395

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Handle: RePEc:bla:jemstr:v:9:y:2000:i:3:p:363-395
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  1. Weingast, Barry R & Moran, Mark J, 1983. "Bureaucratic Discretion or Congressional Control? Regulatory Policymaking by the Federal Trade Commission," Journal of Political Economy, University of Chicago Press, vol. 91(5), pages 765-800, October.
  2. George J. Stigler, 1971. "The Theory of Economic Regulation," Bell Journal of Economics, The RAND Corporation, vol. 2(1), pages 3-21, Spring.
  3. Peltzman, Sam, 1976. "Toward a More General Theory of Regulation," Journal of Law and Economics, University of Chicago Press, vol. 19(2), pages 211-40, August.
  4. Rebecca Henderson & Iain Cockburn, 1996. "Scale, Scope, and Spillovers: The Determinants of Research Productivity in Drug Discovery," RAND Journal of Economics, The RAND Corporation, vol. 27(1), pages 32-59, Spring.
  5. Mary K. Olson, 1997. "Firm Characteristics and the Speed of FDA Approval," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 6(1), pages 377-401, 06.
  6. Olson, Mary K, 1995. "Regulatory Agency Discretion among Competing Industries: Inside the FDA," Journal of Law, Economics and Organization, Oxford University Press, vol. 11(2), pages 379-405, October.
  7. Olson, Mary, 1996. "Substitution in Regulatory Agencies: FDA Enforcement Alternatives," Journal of Law, Economics and Organization, Oxford University Press, vol. 12(2), pages 376-407, October.
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