Department of Economics
1602 Fishburne Drive
Atlanta, GA 30307
Institutional Affiliation: Emory University
NBER Working Papers and Publications
|August 2018||Market Effects of Adverse Regulatory Events: Evidence from Drug Relabeling|
with Matthew J. Higgins, Chirantan Chatterjee: w24957
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 f...