NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Market Effects of Adverse Regulatory Events: Evidence from Drug Relabeling

Matthew J. Higgins, Xin Yan, Chirantan Chatterjee

NBER Working Paper No. 24957
Issued in August 2018, Revised in May 2019
NBER Program(s):Health Economics Program, Industrial Organization Program, Productivity, Innovation, and Entrepreneurship Program

We provide causal evidence that regulatory shocks associated with drug safety label changes lead to aggregate demand declines of 16.9 percent within two years of a relabeling event. After accounting for all plausible substitution patterns by physicians along with competitor actions, aggregate demand declines by 4.7 percent; this decline represents consumers that prematurely leave the market. Results are robust to variation across types of relabeling, market sizes, and levels of competition. Our findings complement recent work that shows negative upstream innovation impacts from these downstream regulatory shocks. Importantly, drugs receiving expedited FDA review are more likely to incur serious safety label changes. Thus, it appears we may be trading off quicker access to new drugs today for less innovation tomorrow. Implications for welfare and policy are discussed.

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Document Object Identifier (DOI): 10.3386/w24957

 
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