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Innovation under regulatory uncertainty: Evidence from medical technology

Ariel Dora Stern

Journal of Public Economics, 2017, vol. 145, issue C, 181-200

Abstract: This paper explores how the regulatory approval process affects innovation incentives in medical technologies. Prior studies have found early mover regulatory advantages for drugs. I find the opposite for medical devices, where pioneer entrants spend 34% (7.2months) longer than follow-on entrants in regulatory approval. Back-of-the-envelope calculations suggest that the cost of a delay of this length is upwards of 7% of the total cost of bringing a new high-risk device to market. Considering potential explanations, I find that approval times are largely unrelated to technological novelty, but are meaningfully reduced by the publication of objective regulatory guidelines. Finally, I consider how the regulatory process affects small firms' market entry patterns and find that small firms are less likely to be pioneers in new device markets, a fact consistent with relatively higher costs of doing so for more financially constrained firms.

Keywords: Regulation; Innovation; FDA; Medical devices (search for similar items in EconPapers)
Date: 2017
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