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Regulatory Reform and Bureaucratic Responsiveness to Firms: the Impact of User Fees in the FDA

Mary Olson

Journal of Economics & Management Strategy, 2000, vol. 9, issue 3, 363-395

Abstract: This paper examines the impact of user fees on the speed of new‐drug review and on the responsiveness of FDA reviewers to pharmaceutical firms. User fees are expected to alter FDA behavior and responsiveness to pharmaceutical firms because they give regulators a financial incentive to process more new‐drug applications and because they convey information to regulators that may reduce type I error. The analysis examines the variation in FDA review times for new drugs approved between 1990 and 1995 as a function of differences that exist among firms and drugs. Specifically, it compares estimates of regulator responsiveness to several firm and drug characteristics before and after the introduction of user fees. The results show that user fees produced a significant change in FDA behavior. Regulators have become less responsive to the differences among firms since the introduction of user fees, which suggests that the reform has led to more equity in the new‐drug review process. In addition, the FDA has expedited the review of new drugs, especially the most therapeutically novel drugs, which suggests that politicians have been fairly successful in designing a reform to realign regulatory incentives in the FDA.

Date: 2000
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Handle: RePEc:bla:jemstr:v:9:y:2000:i:3:p:363-395