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Substitution in Regulatory Agencies: FDA Enforcement Alternatives


  • Olson, Mary


This article develops a framework to understand the factors to which regulatory agencies respond and examines how these factors may influence agency decision-making. The model shows how either changing feedback from constituents or changing regulatory costs can alter the trade-offs facing the agency and hence create opportunities for substitution among different agency actions. This framework is used to explain the changing portfolio of FDA enforcement actions between 1972-92. Results indicate that changing constituent and political feedback is the reason for the observed policy change. Specifically, budget reductions and increasing industry demand for product approval led the FDA to reduce monitoring and substitute less resource-intensive enforcement, namely recalls, for more resource-intensive enforcement. Results also show that increasing numbers of adverse drug reaction reports from consumers and physicians enabled the agency to increase the efficiency of its inspections policy and to ultimately reduce its use of inspections. Copyright 1996 by Oxford University Press.

Suggested Citation

  • 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.
  • Handle: RePEc:oup:jleorg:v:12:y:1996:i:2:p:376-407

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    Cited by:

    1. Hutchinson, Emma & Kennedy, Peter W., 2008. "State enforcement of federal standards: Implications for interstate pollution," Resource and Energy Economics, Elsevier, vol. 30(3), pages 316-344, August.
    2. Kwang-Ho Sim, 2000. "Interests and Political Institutions in U.S. Long-Distance Telecommunications Policy," International Review of Public Administration, Taylor & Francis Journals, vol. 5(1), pages 107-123, June.
    3. Stern, Ariel Dora, 2017. "Innovation under regulatory uncertainty: Evidence from medical technology," Journal of Public Economics, Elsevier, vol. 145(C), pages 181-200.
    4. Marc T. Law & Zeynep K. Hansen, 2009. "Medical Licensing Board Characteristics and Physician Discipline: An Empirical Analysis," NBER Working Papers 15140, National Bureau of Economic Research, Inc.
    5. Mary K. Olson, 2002. "Pharmaceutical Policy Change and the Safety of New Drugs," Journal of Law and Economics, University of Chicago Press, vol. 45(S2), pages 615-642.
    6. Mary K. Olson & Nina Yin, 2018. "Examining Firm Responses to R&D Policy: An Analysis of Pediatric Exclusivity," American Journal of Health Economics, MIT Press, vol. 4(3), pages 321-357, Summer.
    7. Mark Duggan & Fiona M. Scott Morton, 2006. "The Distortionary Effects of Government Procurement: Evidence from Medicaid Prescription Drug Purchasing," The Quarterly Journal of Economics, Oxford University Press, vol. 121(1), pages 1-30.
    8. Helland, Eric, 1998. "The Revealed Preferences of State EPAs: Stringency, Enforcement, and Substitution," Journal of Environmental Economics and Management, Elsevier, vol. 35(3), pages 242-261, May.
    9. Olson, Mary K, 1999. "Agency Rulemaking, Political Influences, Regulation, and Industry Compliance," Journal of Law, Economics, and Organization, Oxford University Press, vol. 15(3), pages 573-601, October.
    10. Mary K. Olson, 2000. "Regulatory Reform and Bureaucratic Responsiveness to Firms: the Impact of User Fees in the FDA," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 9(3), pages 363-395, June.

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