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  • January 2017
  • Article
  • Journal of Public Economics

Innovation Under Regulatory Uncertainty: Evidence from Medical Technology

By: Ariel Dora Stern
  • Format:Print
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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

Citation

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

Ariel D. Stern

Technology and Operations Management
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  • Will mRNA Technology Companies Spawn Innovation Ecosystems? By: Christoph Grimpe, Timo Minssen, W. Nicholson Price, II and Ariel Dora Stern
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