The Market-Expanding Role of Regulatory Approval in Medicine

Benjamin Berger, Amitabh Chandra and Craig Garthwaite

No 28889, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Regulatory review is often seen as a barrier to innovation, increasing costs and delaying new medicines. Yet approval may also expand markets by certifying quality and reducing uncertainty. We test this by studying FDA approval for follow-on indications—uses that physicians could already prescribe “off-label”—and find approval raises use in newly approved diseases by 25 percent within a year, with larger increases in smaller off-label markets. Subsequent approvals in the same disease yield smaller gains. Our results suggest regulatory approval of medicines expands market size by increasing demand, rather than easing insurer-imposed restrictions, revealing limits to market-based learning.

JEL-codes: I1 I18 O3 (search for similar items in EconPapers)
Date: 2021-06
Note: EH IO PE PR
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Citations: View citations in EconPapers (4)

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