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The Market-Expanding Role of Regulatory Approval in Medicine

Ben Berger¹; Amitabh Chandra¹; Craig Garthwaite²

¹ Harvard University · ² Northwestern University

Abstract Regulatory review is often seen as a barrier to innovation, increasing costs and delaying new medicines. Yet approval may also expand markets by certifying quality and reducing uncertainty. We test this by studying FDA approval for follow-on indications—uses that physicians could already prescribe “offlabel” — and find approval raises use in newly approved diseases by 25 percent within a year, with larger increases in smaller off-label markets. Subsequent approvals in the same disease yield smaller gains. Our results suggest regulatory approval of medicines expands market size by increasing demand, rather than easing insurer-imposed restrictions, revealing limits to marketbased learning.

DOI

10.1162/rest.a.1741

Pages

1-28

Language

en

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