Peltzman Revisited: Quantifying 21st-Century Opportunity Costs of Food and Drug Administration Regulation

Peltzman’s work is revisited in light of two recent opportunities to quantitatively assess trade-offs in drug regulation. First, reduced regulatory barriers to drug manufacturing associated with the 2017 reauthorization of generic-drug user fee amendments were followed by more entry and lower prices for prescription drugs. A simple, versatile industry model and historical data on entry indicate that easing restrictions on generics discourages innovation, but this cost is more than offset by benefits from enhanced competition, especially after 2016. Second, accelerated vaccine approval in 2020 had unprecedented net benefits as it improved health and changed the trajectory of the wider economy. Evidence suggests that cost-benefit analysis of Food and Drug Administration (FDA) regulation is incomplete without accounting for substitution toward potentially unsafe and ineffective treatments that are outside FDA jurisdiction and heavily utilized before FDA approval. Moreover, the policy processes initiating the regulatory changes show an influence of Peltzman’s findings.