Arnold Kling  

Is FDA Paternalism a Public Good?

PRINT
The Shadow Knows... Hurricane Lehman Update 4:30 E...

Daniel Klein writes,


knowledge has certain public goods properties. But the public-goods point in no way justifies the restrictions we see; it could only justify government subsidization of knowledge production.

He is writing about FDA regulation of pharmaceuticals. Think of dividing what the FDA does into two functions. First, it conducts trials of drugs and reports the results. Second, it restricts the way some drugs are marketed (requiring a prescription), regulates the way that they are advertised, and bans some of them altogether.

Suppose that we grant that the first function looks like a public good, addressing a likely market failure to produce the information. What market failure does the second function represent?

I think that what people have in mind intuitively is the impact of hard-sell marketing. The thinking is that the sellers of unsafe and ineffective products are so persuasive that we need a paternalistic FDA to protect us. Like Odysseus, we ask the FDA to lash us to the mast in order that we not be lured by the siren song of the snake-oil salesman.

Paternalism of that sort ("stop me before I...") is not in the traditional economic definition of public goods. Maybe the behavioral economists will put it there. If so, then I say we should lash people to the mast lest they be lured by behavioral economics.

Lurking in the background, there is a bootleggers and baptists story that Klein briefly hints at. The large pharmaceutical companies have a huge advantage over small start-ups in having the capital and know-how to run the regulatory gauntlet. The FDA approval process is a wonder drug for stifling competition and keeping the number of new medicines low.

I think that carmakers secretly like auto regulation for the same reason. Lots of gearheads could come up with attractive and competitive designs for automobiles. But they could never overcome the legal and regulatory hurdles to bring their inventions to market.


Comments and Sharing





COMMENTS (7 to date)
Chuck writes:

When you think your post in the context of the alternative medicine market (think crystals and pyramid power), it doesn't seem to me that a little lashing to the mast is unwarranted.

In regard to small start ups and new drugs: university research is behind many genuinely 'new' drugs.

Even if a prospective drug inventor doesn't believe they can make it through the regulatory 'thicket', it will certainly get bought up if it has good results on animals, so there is plenty of incentive still there.

The big drug companies typically like to make 'me too' drugs like antacids and cholesterol drugs. Then they game the system, comparing their drug to a placebo rather than to other generics that might be more effective. If they do put their drug up against another drug, they'll under dose the competitor drug to make their drug look better.

There is a reason things like seat belts had to be mandated. While people are aware that seat belts save lives, they only save other people's lives, because it is always the other guy who is a bad driver.

And if you don't think the auto aftermarket is alive and healthy, you're nuts.

Richard writes:

Chuck,

I would argue that the market for alternative medicine undercuts the case for giving the FDA restrictive powers, rather than supporting it. For people who are not happy with the official line on what works, there will always be someone happy to sell them something unregulated for a significant amount of money and at great risk to their health.

Similarly, to the extent that "me too" drugs are really a problem, which is debatable, the FDA is not set up to prevent that sort of thing and does not limit it to any great extent.

Chuck writes:

Richard,

I was making two separate points:

In regard to alt medicine comment, the reason I see that as an affirmative argument for the FDA is that I don't think the FDA has to be perfect at weeding out bogus treatments, just pretty good. But in the absence of the referee, how bad would the behavior get then?

My other separate point, which included a digression about 'me too' drugs (which I don't see as a *problem* as much as somewhat of a waste), was in regard to AK's sentiment about FDA regulation stifling innovation and drug invention by small companies, or companies in general.

I'll put it another way by saying that I don't see the FDA as having the unintended consequence of stifling new drug research because in that case what is of value is a technology. The technology can be proven on animals, and then sold to a drug company with the resources to take it through approval.

Ak Mike writes:

Dr. Kling - you mean "regulatory gantlet" not "gauntlet." A gauntlet is a glove.

Tim Fowler writes:

Chuck -

Re: "The big drug companies typically like to make 'me too' drugs"

Either the "me too" drug has the exactly the same effect (or really really close to it) in which case it benefits us from providing competition, or it doesn't, in which case it gives more usable options for patients and doctors to try to pick from to try and find one that works correctly for the patient.

Re: "like antacids and cholesterol drugs"

You don't think cholesterol drugs and antacids are useful?

re: "Then they game the system, comparing their drug to a placebo rather than to other generics"

Thats not gaming the system, that showing their drug works.

Re: "Even if a prospective drug inventor doesn't believe they can make it through the regulatory 'thicket', it will certainly get bought up if it has good results on animals, so there is plenty of incentive still there. "

If it doesn't get approved, it doesn't make money.

Re: "In regard to small start ups and new drugs: university research is behind many genuinely 'new' drugs."

University and government research is behind much of the basic science. Not so much behind the development of the compound in to a toughly usable drug, at least not in most cases. Also beyond the R&D, you also have large testing costs.

Dr. T writes:
Think of dividing what the FDA does into two functions. First, it conducts trials of drugs and reports the results.
The FDA does not conduct trials of drugs or medical devices. Companies apply to the FDA for permission to conduct trials using FDA-approved protocols. The distinction is important.

I believe that the FDA should be privatized and that pharmaceutical and medical device companies should have a choice about using it. Most physicians will prescribe only approved drugs or use only approved devices (such as pacemakers), so there would be strong incentives to get approval. The process may get more efficient with privatization.

Pedant writes:

Robin Hanson had a paper on this:
http://www.overcomingbias.com/2008/04/paternalism-par.html

Comments for this entry have been closed
Return to top