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Innovation under regulatory uncertainty: Evidence from medical technology

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  • Stern, Ariel Dora

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% (7.2months) 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% 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.

Suggested Citation

  • Stern, Ariel Dora, 2017. "Innovation under regulatory uncertainty: Evidence from medical technology," Journal of Public Economics, Elsevier, vol. 145(C), pages 181-200.
  • Handle: RePEc:eee:pubeco:v:145:y:2017:i:c:p:181-200
    DOI: 10.1016/j.jpubeco.2016.11.010
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    Cited by:

    1. Reypens, Lina & Bacq, Sophie & Milanov, Hana, 2021. "Beyond bricolage: Early-stage technology venture resource mobilization in resource-scarce contexts," Journal of Business Venturing, Elsevier, vol. 36(4).
    2. Massimo Florio & Simona Gamba, 2021. "Biomed Europa: After the coronavirus, a public infrastructure to overcome the pharmaceutical oligopoly," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 92(3), pages 387-409, September.
    3. Ariel Dora Stern, 2022. "The Regulation of Medical AI: Policy Approaches, Data, and Innovation Incentives," NBER Working Papers 30639, National Bureau of Economic Research, Inc.
    4. Gamba, Simona & Magazzini, Laura & Pertile, Paolo, 2021. "R&D and market size: Who benefits from orphan drug legislation?," Journal of Health Economics, Elsevier, vol. 80(C).
    5. Ariel Dora Stern, 2022. "The Regulation of Medical AI: Policy Approaches, Data, and Innovation Incentives," NBER Chapters, in: The Economics of Artificial Intelligence: Health Care Challenges, National Bureau of Economic Research, Inc.
    6. Matthew Grennan & Robert J. Town, 2020. "Regulating Innovation with Uncertain Quality: Information, Risk, and Access in Medical Devices," American Economic Review, American Economic Association, vol. 110(1), pages 120-161, January.
    7. Dranove, David & Garthwaite, Craig & Heard, Christopher & Wu, Bingxiao, 2022. "The economics of medical procedure innovation," Journal of Health Economics, Elsevier, vol. 81(C).
    8. Margaret K. Kyle, 2019. "The Alignment of Innovation Policy and Social Welfare: Evidence from Pharmaceuticals," NBER Chapters, in: Innovation Policy and the Economy, Volume 20, pages 95-123, National Bureau of Economic Research, Inc.
    9. Sofia Amaral-Garcia, 2020. "Medical Device Companies and Doctors: Do their Interactions Affect Medical Treatments ?," Working Papers ECARES 2020-18, ULB -- Universite Libre de Bruxelles.
    10. Ferriani, Simone & Lazerson, Mark H. & Lorenzoni, Gianni, 2020. "Anchor entrepreneurship and industry catalysis: The rise of the Italian Biomedical Valley," Research Policy, Elsevier, vol. 49(8).
    11. Matthew Grennan & Charu Gupta & Mara Lederman, 2018. "Firm Scope and Spillovers from New Product Innovation: Evidence from Medical Devices," NBER Working Papers 25183, National Bureau of Economic Research, Inc.
    12. Amaral-Garcia, S.;, 2022. "Medical Device Companies and Doctors: Do their interactions affect medical treatments?," Health, Econometrics and Data Group (HEDG) Working Papers 22/10, HEDG, c/o Department of Economics, University of York.
    13. Shatrov, Kosta & Blankart, Carl Rudolf, 2022. "After the four-year transition period: Is the European Union's Medical Device Regulation of 2017 likely to achieve its main goals?," Health Policy, Elsevier, vol. 126(12), pages 1233-1240.
    14. Dirk Dohse & Rajeev K. Goel & James W. Saunoris, 2023. "Patenting uncertainty and its impact on innovation: evidence from the United States," The Journal of Technology Transfer, Springer, vol. 48(5), pages 1839-1859, October.
    15. Ziyi Zhao & Banghao Zhou, 2022. "Latecomers’ Isomorphic R&D Strategy and the Relationship With Performance: A Study on Chinese Pharmaceutical Firms," SAGE Open, , vol. 12(2), pages 21582440221, May.
    16. Xiao, Fenglong, 2022. "Non-competes and innovation: Evidence from medical devices," Research Policy, Elsevier, vol. 51(6).
    17. Semjonova Nadezhda, 2020. "Economic Tendencies of the European and Latvian Medical Device Market," Economics and Business, Sciendo, vol. 34(1), pages 297-310, February.

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