Economics Dictionary of ArgumentsHome
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| Regulation: A. Regulation in psychology is the process of managing one's emotions, thoughts, and behaviors. - B. Regulation in economics is the government intervention in markets to achieve certain social or economic goals. See also Interventions, Feedback._____________Annotation: The above characterizations of concepts are neither definitions nor exhausting presentations of problems related to them. Instead, they are intended to give a short introduction to the contributions below. – Lexicon of Arguments. | |||
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Samuel Peltzman on Regulation - Dictionary of Arguments
Henderson I 79 Regulation/Peltzman/Henderson/Globerman: One theme of much of [the] work [of Sam Peltzman and George Hilton] is the idea of unintended consequences. Legislators and regulators, with little of their own wealth at stake, often fail to think through or simply don't care about the unintended consequences of the policies they favour and enforce. Even those who might care are not omniscient. So even if they have good intentions, they will still often cause consequences that are at odds with their stated goals. Peltzman: Sam Peltzman's first major contribution to the literature on the unintended consequences of regulation was his famous path-breaking study(1) of the effects on drug development of regulation by the Food and Drug Administration (FDA). Prior to 1962, the FDA could prevent a pharmaceutical company from selling a drug only on grounds of safety. Henderson I 80 Efficacy/safety: Example Contergan: (…) after the thalidomide tragedy of the late 1950s and early 1960s in which hundreds of babies, mainly in Europe, were born with drastically shortened or no limbs after their mothers took the drug, the federal government introduced a law that required evidence of drug efficacy. Notice the irony. Thalidomide turned out to be unsafe, not ineffective. Indeed, it was quite effective at its intended use, namely, helping pregnant women deal with morning sickness. But proponents of increased regulation used the tragedy to push for a regulation on effcacy. Kefauver Harris Amendment: The particular regulation was the 1962 Kefauver Harris Amendment to the Federal Food, Drug, and Cosmetic Act. Regulation: In the early 1970s, Sam Peltzman, (…) wondered if the regulation would slow the rate of introduction of new drugs. After all, additional compliance costs make drug development more expensive. So he compared the number of new chemical entities that the FDA had approved before the 1962 law with the annual number approved after the law. The result? According to the Peltzman's analysis, had the pre-1962 law trend continued, there would have been about 40 new drug approvals each year. Instead, there were only 16, a 60 percent drop (Peltzman, 1974)(1). Inefficiency: One might hope that it was mainly bad or ineffective drugs that were weeded out. But no such luck. Peltzman estimated that, at most, the percentage of ineffective drugs being marketed before 1962 was 10 percent. As a result of the Kefauver-Harris Amendment the percentage may have dropped to 5. Problem: (…) the 60 percent drop in all drugs meant that patients never had access to many drugs that would have been effcacious. Peltzman commented that the effects of the 1962 law were as if "an arbitrary marketing quota... had been placed on new drugs after 1962" (1974(1): PeltzmanVsRegulation: For those who think that regulation causes good effects, Peltzman's results presented a puzzle. Why weren't there more ineffective drugs on the market and why didn't the FDA have a salutary effect? Solution: Peltzman answered, "The penalties imposed by the marketplace on sellers of ineffective drugs before 1962 seem to have been suffcient to have left little room for improvement by a regulatory agency" (1974(1): 45). >Regulation/Hilton, >Interventions, >Interventionism. Henderson I 83 Benefits: Peltzman disputed neither the idea that producers are frequently beneficiaries of the regulatory process nor that regulators pursue their self-interest and not some ideal perspective of the social good. Instead he provided a more general view of the economics of the regulatory process. Model of regulation/Peltzman: In Peltzman's model of regulation, the regulator redistributes wealth among various contending groups in order to maximize political support. >Government policy. That insight is probably the single most salient contribution to economists' understanding of the regulatory decision-making process. In his groundbreaking 1976 article(2), Peltzman explained the regulatory process as a market in which the forces of supply and demand determine the winners and losers from the wealth-transferring decisions of regulators. Both companies and consumers demand favorable decisions from the regulator. Their representatives, who are often lobbyists or organizations representing specific groups such as retirees (AARP) or environmentalists (the Sierra Club, for example), supply financial and other support to politicians who are likely to appoint and empower regulators who will take actions favourable to the groups they represent. Supply and demand: A key conclusion of Peltzman's model is that the outcome of the supply and demand process is that producers need not emerge as the sole beneficiaries of the regulatory process. Cost and benefits: Rather, because the cost of organizing into a cohesive lobbying group is only one factor influencing who will obtain favourable regulatory outcomes, the distribution of benefits and costs from regulatory decisions is likely to be more diffuse than the concentrated/dispersed paradigm predicts. >Regulatory economics/Peltzman. 1. Peltzman, Sam (1974). Regulation of Pharmaceutical Innovation. American Enterprise Institute for Public Policy Research. 2. Peltzman, Sam (1976). Toward a More General Theory of Regulation. Journal of Law & Economics 19, 2: 211-240._____________Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments The note [Concept/Author], [Author1]Vs[Author2] or [Author]Vs[term] resp. "problem:"/"solution:", "old:"/"new:" and "thesis:" is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition. |
Peltzman I Samuel Peltzman Political Participation and Government Regulation (History, Culture, and Life) Chicago: University of Chicago Press 1998 Henderson I David R. Henderson Steven Globerman The Essential UCLA School of Economics Vancouver: Fraser Institute. 2019 |
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