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Regulatory Errors with Endogenous Agendas

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  • Daniel Carpenter
  • Michael M. Ting

Abstract

How do a regulator's decisions depend on the characteristics and strategies of its external clients? We develop a theory of approval regulation in which an uninformed regulator may veto the submission of a better‐informed firm. The firm can perform publicly observable experiments to generate product information prior to submission. We find that when experimentation is short, Type I errors (approving bad products) are more likely for products submitted by firms with lower experimentation costs (larger firms), while Type II errors (rejecting good products) should be concentrated among smaller firms. These comparative statics are reversed when experimentation is long. We perform a statistical analysis on FDA approvals of new pharmaceutical products using two different measures of Type I error. We find consistent support for the counterintuitive hypothesis that, under particular conditions, errors are decreasing in the size of the firm submitting the product.

Suggested Citation

  • Daniel Carpenter & Michael M. Ting, 2007. "Regulatory Errors with Endogenous Agendas," American Journal of Political Science, John Wiley & Sons, vol. 51(4), pages 835-852, October.
    • Handle: RePEc:wly:amposc:v:51:y:2007:i:4:p:835-852
    DOI: 10.1111/j.1540-5907.2007.00284.x
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    Citations

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    Cited by:

    1. Daniel Carpenter, 2014. "Accounting for Financial Innovation and Borrower Confidence in Financial Rule Making: Analogies from Health Policy," The Journal of Legal Studies, University of Chicago Press, vol. 43(S2), pages 331-349.
    2. Emeric Henry & Gianmarco Ottaviano, 2019. "Research and the Approval Process: the Organization of Persuasion," Sciences Po publications info:hdl:2441/1gr6n3t28b9, Sciences Po.
    3. Stern, Ariel Dora, 2017. "Innovation under regulatory uncertainty: Evidence from medical technology," Journal of Public Economics, Elsevier, vol. 145(C), pages 181-200.
    4. Michal Carrington & Andreas Chatzidakis & Helen Goworek & Deirdre Shaw, 2021. "Consumption Ethics: A Review and Analysis of Future Directions for Interdisciplinary Research," Journal of Business Ethics, Springer, vol. 168(2), pages 215-238, January.
    5. Sebastian Calónico & Rafael Di Tella & Juan Cruz Lopez del Valle, 2023. "The Political Economy of a “Miracle Cure”: The Case of Nebulized Ibuprofen and its Diffusion in Argentina," NBER Working Papers 31781, National Bureau of Economic Research, Inc.
    6. repec:hal:spmain:info:hdl:2441/1gr6n3t28b94tafji6op8tlqs1 is not listed on IDEAS
    7. Michael M. Ting, 2017. "Politics and Administration," American Journal of Political Science, John Wiley & Sons, vol. 61(2), pages 305-319, April.
    8. Ziyi Zhao & Banghao Zhou, 2022. "Latecomers’ Isomorphic R&D Strategy and the Relationship With Performance: A Study on Chinese Pharmaceutical Firms," SAGE Open, , vol. 12(2), pages 21582440221, May.
    9. Hans de Bruijn & Martijn Groenleer & Theo van Ruijven, 2016. "The dynamics of doping: Lance Armstrong, the United States Anti‐Doping Agency and the regulatory governance of professional cycling," Regulation & Governance, John Wiley & Sons, vol. 10(3), pages 284-297, September.
    10. Montagnes, B. Pablo & Wolton, Stephane, 2015. "Rule Versus Discretion: Regulatory Uncertainty, Firm Investment, and the Ally Principle," MPRA Paper 65047, University Library of Munich, Germany.
    11. Daniel Carpenter & Justin Grimmer & Eric Lomazoff, 2010. "Approval regulation and endogenous consumer confidence: Theory and analogies to licensing, safety, and financial regulation," Regulation & Governance, John Wiley & Sons, vol. 4(4), pages 383-407, December.
    12. Rebecca L. Perlman, 2020. "For Safety or Profit? How Science Serves the Strategic Interests of Private Actors," American Journal of Political Science, John Wiley & Sons, vol. 64(2), pages 293-308, April.
    13. Clement Minaudier, 2022. "The Value of Confidential Policy Information: Persuasion, Transparency, and Influence," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 38(2), pages 570-612.
    14. Montagnes, B. Pablo & Wolton, Stephane, 2017. "Rule versus discretion: regulatory uncertainty, firm investment, and bureaucratic organization," LSE Research Online Documents on Economics 67075, London School of Economics and Political Science, LSE Library.

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