Date of this Version
National Bureau of Economic Research Working Paper Series
We propose a model where new product quality is uncertain, but market participants learn over time. Regulation balances information's role in reducing consumer risk versus reducing access to innovation. Using new data and variation between EU and US medical device regulations, we document patterns consistent with the model and estimate its parameters. We find: (1) without information from testing, risk would severely inhibit usage; (2) US policy maximizes total surplus in our estimated model while the EU could gain 20 percent with more pre-market testing; and (3) more “post- market surveillance” could increase surplus 24 percent.
Grennan, M., & Town, R. (2016). Regulating Innovation with Uncertain Quality: Information, Risk, and Access in Medical Devices. National Bureau of Economic Research Working Paper Series, http://dx.doi.org/10.3386/w20981
Date Posted: 27 November 2017