Article | Journal of Public Economics | January 2017

Innovation Under Regulatory Uncertainty: Evidence from Medical Technology

by Ariel Dora Stern

Abstract

This paper explores how the regulatory approval process affects innovation incentives in medical technologies. Prior studies have found early mover regulatory advantages for drugs. I find the opposite for medical devices, where pioneer entrants spend 34% (7.2 months) longer than follow-on entrants in regulatory approval. Back-of-the-envelope calculations suggest that the cost of a delay of this length is upwards of 7% of the total cost of bringing a new high-risk device to market. Considering potential explanations, I find that approval times are largely unrelated to technological novelty but are meaningfully reduced by the publication of objective regulatory guidelines. Finally, I consider how the regulatory process affects small firms' market entry patterns and find that small firms are less likely to be pioneers in new device markets, a fact consistent with relatively higher costs of doing so for more financially constrained firms.

Keywords: Technological Innovation; Medical Devices and Supplies Industry;

Format: Print Find at Harvard Read Now

Citation:

Stern, Ariel Dora. "Innovation Under Regulatory Uncertainty: Evidence from Medical Technology." Journal of Public Economics 145 (January 2017): 181–200.

About the Author

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Ariel D. Stern
Poronui Associate Professor of Business Administration
Technology and Operations Management

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