The constitutional political economy of the new drug approval process

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This dissertation attempts to further our understanding of the political demand for Food and Drug Administration's (FDA) new drug approval process and the role that rules—especially, constitutional rules—play in new drug development. To perform the drug safety evaluation, this study draws from the fields of constitutional political economy, the economics of information, law and economics, institutional economics, and game theory.

Economists are uniformly critical of the FDA new drug approval process, attributing to it a decline in the availability of therapeutic new drugs. The process seems to impose large compliance costs on drug manufacturers and patients alike, with few if any offsetting benefits. The standard account attributes the regimes origin to a sharp overreaction by Congress to the thalidomide scare of 1962. The burden created by the 1962 regime was to cause too much new drug testing, slow evaluation of the results and uncertain approval of beneficial new drugs. As an alternative hypothesis, this study maintains that the political demand for FDA's new drug approval process is a demand for welfare enhancing constraints that direct drug research to regions on nonconvex production functions where potential global maximums exist but that are not discoverable without constraints. The choice for the political community is for drugresearch within enforceable scientific, ethical and legal rules or drug research without rules.

Consumers, manufacturers, human test subjects, retailers and the courts are incapable of perceiving the benefits and risks of new drugs from their own or from others direct observation or clinical impressions. Medical reformers over a period of a century determined that only controlled experiments that warrant scientific belief have the potential to advance medical knowledge. Yet, controlled experiments, when conducted for profit, are vulnerable to moral hazard and adverse selection.

FDA's collective decision-making rules establish an enforcable quasi constitution for society. Within the rules, drug safety evaluation and medical professionals are exempt from strict liability in tort, which creates a legal safe harbor to conduct drug experiments on human test subjects and promotes new drug innovation.