Unbiased Analysis of Today's Healthcare Issues

Do Economists Support FDA Pre-approval of Drugs?

Written By: Jason Shafrin - May• 09•10

Conventional wisdom holds that economists advocate for reducing regulation on most policy arenas.  Regulation imposes costs and businesses and is often ineffective.  Further, as technology and market conditions change, regulations which were originally welfare enhancing can now become archane.

The public generally views the FDA’s pre-approval as a worthwhile endeavor.  The goal of FDA pre-approval is to protect consumers against unsafe and/or ineffective drugs.  In the world of neo-classical economics, agents have perfect information about drug quality and the role for the FDA disappears.  Even if information is not perfectly observed, the FDA’s ability to restrict the entry of potentially useful drugs into the market can be welfare destroying.  Certifying drugs as safe rather than prohibiting them through regulations may be a preferable form of spreading information.

In a recent survey of 44 leading economists, 23 support or strongly support pre-market approval of new pharmaceuticals and devices while 15 where opposed or strongly opposed (6 were neutral).  The key rationale behind the support of pre-market approval was the problem of imperfect information and also the public goods aspect of knowledge.  Fewer economists supported the notion that the government has superior ability to assure safety and  efficacy.

The majority of economists also believe:

  • the effect of pre-market approval in suppressing would-have-been benefits is often or typically overstated in public discourse.
  • doctors do not systematically error when prescribing medicines.
  • replacing the current FDA system with a simple physician prescription requirement for new drugs and devices is a bad idea
  • The current FDA system increase the amount of knowledge available on new drugs.

Economists were split as to whether drugs approved by European, Japanese, and Canadian authorities should automatically be approved for use in the U.S.

This survey shows that economists do not have a clear consensus answer to the question of whether there is “a sound market-failure rationale for the banned-till-permitted policy for drugs and devices.

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