An economic theory of statistical testing

Aleksey Tetenov

No 50/16, CeMMAP working papers from Institute for Fiscal Studies

Abstract: This paper models the use of statistical hypothesis testing in regulatory approval. A privately informed agent proposes an innovation. Its approval is beneficial to the proponent, but potentially detrimental to the regulator. The proponent can conduct a costly clinical trial to persuade the regulator. I show that the regulator can screen out all ex-ante undesirable proponents by committing to use a simple statistical test. Its level is the ratio of the trial cost to the proponent's benefit from approval. In application to new drug approval, this level is around 15% for an average Phase III clinical trial.

Date: 2016-09-27
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://www.cemmap.ac.uk/wp-content/uploads/2020/08/CWP5016.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:azt:cemmap:50/16

DOI: 10.1920/wp.cem.2016.5016

Access Statistics for this paper

More papers in CeMMAP working papers from Institute for Fiscal Studies Contact information at EDIRC.
Bibliographic data for series maintained by Dermot Watson ().