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Regulating Innovation with Uncertain Quality: Information, Risk, and Access in Medical Devices

Matthew Grennan and Robert J. Town

American Economic Review, 2020, vol. 110, issue 1, 120-61

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.

JEL-codes: D43 I18 L13 L51 L64 O31 O38 (search for similar items in EconPapers)
Date: 2020
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Working Paper: Regulating Innovation with Uncertain Quality: Information, Risk, and Access in Medical Devices (2015) Downloads
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DOI: 10.1257/aer.20180946

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