Hostname: page-component-f554764f5-fnl2l Total loading time: 0 Render date: 2025-04-15T21:08:03.413Z Has data issue: false hasContentIssue false
  • English
  • Français

Protection without Capture: Product Approval by a Politically Responsive, Learning Regulator

Published online by Cambridge University Press:  01 November 2004

DANIEL P. CARPENTER
DANIEL P. CARPENTER
Affiliation:
Harvard University
Get access Rights & Permissions [Opens in a new window]

Abstract

When policy arrangements appear to favor well-organized and wealthy interests, should we infer “capture” of the political process? In particular, might larger firms receive regulatory “protection” even when the regulatory agency is not captured by producers? I model regulatory approval—product approval, licensing, permitting and grant making—as a repeated optimal stopping problem faced by a learning regulator subject to variable political pressure. The model is general but stylistically applied to pharmaceutical regulation. Under the assumption that consumers are differentially organized, but producers are not, there nonetheless exist two forms of “protection” for larger, older producers. First, firms submitting more applications may expect quicker and more likely approvals, even in cases where their reputations for safety are below industry average. Second, “early entrants” to an exclusive market niche (disease) receive shorter expected approval times than later entrants, even when later entrants offer known quality improvements. The findings extend to cases of bounded rationality and a reduced form of endogenous firm submissions. The model shows that even interest-neutral “consumer” regulation can generate protectionist outcomes, and that commonly adduced evidence for capture is often observationally equivalent to evidence for other models of regulation.

Type
ARTICLES
Information
American Political Science Review , Volume 98 , Issue 4 , November 2004 , pp. 613 - 631
Copyright
© 2004 by the American Political Science Association

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Article purchase

Temporarily unavailable

References

Arnold R. Douglas. 1990. The Logic of Congressional Action. New Haven, CT: Yale University Press.
Bartel Ann, and Lacy Glenn Thomas. 1987. “Predation through Regulation.” Journal of Law and Economics 30 (2): 239– 64.Google Scholar
Becker Gary S. 1985. “Public Policies, Pressure Groups, and Dead Weight Costs.” Journal of Public Economics 28: 330– 47.Google Scholar
Bendor Jonathan, Dilip Mookherjee, and Debraj Ray. 2001. “Aspiration-Based Reinforcement Learning in Repeated Games: An Overview.” International Game Theory Review 3 (2–3): 159– 74.Google Scholar
Bernstein Marver H. 1955. Regulating Business by Independent Commission. Princeton, NJ: Princeton University Press.
Brehm John, and Scott Gates. 1997. Working, Shirking and Sabotage. Ann Arbor: University of Michigan Press.
Breyer Stephen. 1982. Regulation and Its Reform. Cambridge, MA: Harvard University Press.
Carpenter Daniel P. 2001. The Forging of Bureaucratic Autonomy: Reputations, Networks and Policy Innovation in Executive Agencies, 1862–1928. Princeton, NJ: Princeton University Press.
Carpenter Daniel P. 2002. “Groups, the Media, Agency Waiting Costs, and FDA Drug Approval.” American Journal of Political Science 46 (3): 490– 505.Google Scholar
Carpenter Daniel P., and Michael M. Ting. 2004. “A Theory of Approval Regulation with Endogenous Submissions.” Manuscript. Harvard University.
Chernoff Herman. 1968. “Optimal Stochastic Control.” Sankhya — The Indian Journal of Statistics Series A 30 (3): 221– 252.Google Scholar
Chhikara R. S., and J. Leroy Folks. 1989. The Inverse Gaussian Distribution: Theory, Methodology, and Applications. New York: Marcel Dekker.
Crandall Robert W., and Kenneth Flamm, eds. 1989. Changing the Rules: Technological Change, International Competition, and Regulation in Communications. Washington, DC: Brookings Institution.
DeGroot Morris H. 1970. Optimal Statistical Decisions. New York: McGraw-Hill.
DiMasi Joseph A. 1996. “A New Look at United States Drug Development and Approval Times.” American Journal of Therapeutics 3: 1– 11.Google Scholar
DiMasi Joseph A., Ronald W. Hansen, Henry G. Grabowski, and Louis Lasagna. 1991. “Cost of Innovation in the Pharmaceutical Industry.” Journal of Health Economics 10 (1991): 107– 42.Google Scholar
Dixit Avinash K. 1993. The Art of Smooth Pasting. Chur. Switzerland: Harwood Academic.
Dranove David, and David Meltzer. 1994. “Do Important Drugs Reach the Market Sooner?” RAND Journal of Economics 25 (3): 402– 23.Google Scholar
Epstein Steven. 1996. Impure Science: AIDS, Activism, and the Politics of Knowledge. Berkeley: University of California Press.
General Accounting Office (“GAO”). 1995. FDA Review Time for Drugs has Decreased in Recent Years. Washington, DC: GAO.
Gordon Sanford. 1999. “Managing Fairness.” Ph.D. Dissertation. Princeton University.
Grabowski Henry G., and John M. Vernon. 1976. “Structural Effects of Regulation on Innovation in the Ethical Drug Industry.” In Essays on Industrial Organization in Honor of Joe S. Bain; eds. Robert T. Masson and P. David Qualls. Cambridge, MA: Lippincott, Ballinger, 1976, 181– 205.
Grabowski Henry G., and John M. Vernon. 1983. The Regulation of Pharmaceuticals. Washington, DC: AEI Press.
Hammond Thomas H., and Paul Thomas. 1989. “The Impossibility of a Neutral Hierarchy.” Journal of Law, Economics and Organization, 5 (1): 155– 84.Google Scholar
Heimann C. F. Larry. 1997. Acceptable Risks: Politics, Policy and Risky Technologies. Ann Arbor: University of Michigan Press.
Hilts Philip. 2003. Protecting America's Health: The FDA, Business, and One Hundred Years of Regulation. New York: Knopf.
Hinich Melvin J., and Richard Staelin. 1980. Consumer Protection Regulation and the U.S. Food Industry. New York: Pergamon Press.
Huntington Samuel P. 1953. “The Marasmus of the ICC: The Commission, the Railroads and the Public Interest.” Yale Law Journal 61: 467– 509.Google Scholar
Jackson Charles O. 1970. Food and Drug Legislation in the New Deal. Princeton, NJ: Princeton University Press.
Joskow Paul. 1974. “Inflation and Environmental Concern: Structural Change in the Process of Public Utility Price Regulation.” Journal of Law and Economics 17: 291– 327.Google Scholar
Jovanovic Boyan. 1979. “Job Matching and the Theory of Turnover.” Journal of Political Economy 87 (5): 972– 90.Google Scholar
Karatzas Ioannis, and Steven E. Shreve. 1991. Brownian Motion and Stochastic Calculus. 2nd ed. New York: Springer-Verlag.
Kyle Margaret. 2002. “Entry in Pharmaceutical Markets.” Mimeo. Carnegie–Mellon.
Miroschnichenko T. P. 1975. “Optimal Stopping of an Integral of a Wiener Process.” Theory of Probability and Its Applications 9 (4): 355– 92.Google Scholar
Mullainathan Sendhil. 2002. “A Memory-Based Model of Bounded Rationality.” Quarterly Journal of Economics 117 (3): 735– 74.Google Scholar
Noll Roger G. 1973. Economic Aspects of Television Regulation. Washington, DC: Brookings Institution.
Noll Roger G. 1985. “Government Regulatory Behavior: A Multidisciplinary Survey and Synthesis.” In Regulatory Policy and the Social Sciences, ed. R. Noll. Berkeley: University of California Press.
Olson Mary. 1995. “Substitution in Regulatory Agencies: FDA Enforcement Alternatives.” Journal of Law Economics and Organization 12 (2): 376– 407.Google Scholar
Olson Mary. 1997. “Firm Characteristics and the Speed of FDA Approval.” Journal of Economics and Management Strategy 6 (2): 377– 401.Google Scholar
Peltzman Sam. 1973. “An Evaluation of Consumer Protection Legislation: The 1962 Drug Amendments.” Journal of Political Economy 81 (5): 1049– 91.Google Scholar
Peltzman Sam. 1976. “Toward a More General Theory of Regulation.” Journal of Law and Economics 19: 211– 40.Google Scholar
Quirk Paul. 1980. “The Food and Drug Administration.” In The Politics of Regulation, ed. James Q. Wilson. New York: Basic Books.
Rabin Matthew, and Joel L. Schrag. 1999. “First Impressions Matter: A Model of Confirmatory Bias.” Quarterly Journal of Economics 114 (February): 37– 82.Google Scholar
Rothenberg Lawrence S. 1994. Regulation, Organizations, and Politics: Motor Freight Policy at the Interstate Commerce Commission. Ann Arbor: University of Michigan Press.
Schultz Kenneth. 1998. “Domestic Opposition and Signaling in Crisis Bargaining Games.” American Political Science Review 92 (4): 829– 44.Google Scholar
Shepp Larry. 1969. “Explicit Solutions to Some Problems of Optimal Stopping.” Annals of Mathematical Statistics 40: 993– 1010.Google Scholar
Spence David B. 1999. “Managing Delegation Ex Ante: Using Law to Steer Administrative Agencies.” Journal of Legal Studies 28 (2): 413– 60.Google Scholar
Stigler George J. 1975. The Citizen and the State: Essays on Regulation. Chicago: University of Chicago Press.
Taylor Howard M., and Samuel Karlin. 1998. An Introduction to Stochastic Modeling. 3rd ed. New York: Academic Press.
Thomas Lacy Glenn. 1990. “Regulation and Firm Size: FDA Impacts on Innovation.” RAND Journal of Economics 21 (4): 497– 517.Google Scholar
Ting Michael M. 2003. “Flying Blind: A Theory of Bureaucratic Learning.” Manuscript, Columbia University.
Viscusi W. Kip. 1992. Fatal Tradeoffs. New York: Oxford University Press, 177.
Vogel David. 1996. Kindred Strangers: The Uneasy Relationship between Politics and Business in America. Princeton, NJ: Princeton University Press, chap. 8.
Wilson James Q. 1980. The Politics of Regulation. New York: Basic Books.
Submit a response

Comments

No Comments have been published for this article.