Research / BFI Working PaperDec 20, 2021

Peltzman Revisited: Quantifying 21st Century Opportunity Costs of FDA Regulation

This paper revisits Peltzman (1973) in light of two recent opportunities to quantitatively assess tradeoffs in drug regulation. First, reduced regulatory barriers to drug manufacturing associated with the 2017 reauthorization of Generic Drug User Fee Amendments were followed by significantly more entry and lower consumer prices for prescription drugs. Using a simple and versatile industry model and historical data on entry, I find that easing generic restrictions discourages innovation, but this welfare cost is more than offset by consumer benefits from enhanced competition, especially after 2016. Second, accelerated vaccine approval in 2020 had unprecedented net benefits as it not only improved health but substantially changed the trajectory of the wider economy. The evidence suggests that cost-benefit analysis of FDA regulation is incomplete without accounting for substitution toward potentially unsafe and ineffective treatments that are both outside FDA jurisdiction and heavily utilized prior to FDA approval. Moreover, the policy processes initiating these 21st century regulatory changes show a clear influence of Peltzman’s 1973 findings.

Additional Materials

More Research From These Scholars

BFI Working Paper Dec 23, 2020

Deaths of Despair and the Incidence of Excess Mortality in 2020

Casey Mulligan
Topics:  COVID-19
BFI Working Paper Apr 16, 2020

Economic Activity and the Value of Medical Innovation during a Pandemic

Casey Mulligan
Topics:  COVID-19
BFI Working Paper Jul 27, 2017

Wedges, Labor Market Behavior, and Health Insurance Coverage Under the Affordable Care Act

Casey Mulligan, Trevor S. Gallen
Topics:  Health care