Regulating Innovation with Uncertain Quality: Information, Risk, and Access in Medical Devices
American Economic Review
vol. 110,
no. 1, January 2020
(pp. 120-61)
(Complimentary)
Abstract
We study the impact of regulating product entry and quality information requirements on an oligopoly equilibrium and consumer welfare. Product testing can reduce consumer uncertainty, but also increase entry costs and delay entry. Using variation between EU and US medical device regulations, we document patterns consistent with valuable learning from more stringent US requirements. To derive welfare implications, we pair the data with a model of supply, demand, and testing regulation. US policy is indistinguishable from the policy that maximizes total surplus in our estimated model, while the European Union could benefit from more testing. "Post-market surveillance" could further increase surplus.Citation
Grennan, Matthew, and Robert J. Town. 2020. "Regulating Innovation with Uncertain Quality: Information, Risk, and Access in Medical Devices." American Economic Review, 110 (1): 120-61. DOI: 10.1257/aer.20180946Additional Materials
JEL Classification
- D43 Market Structure, Pricing, and Design: Oligopoly and Other Forms of Market Imperfection
- I18 Health: Government Policy; Regulation; Public Health
- L13 Oligopoly and Other Imperfect Markets
- L51 Economics of Regulation
- L64 Other Machinery; Business Equipment; Armaments
- O31 Innovation and Invention: Processes and Incentives
- O38 Technological Change: Government Policy