FiRe-Economics Research Seminar

" Market access of a new pharmaceutical: a risky game with high stakes"

The objective of this contribution is to analyze the interaction between an agency such as the U.S. Federal Drug Administration whose task is to examine the safety and efficacy of a new pharmaceutical and the pharmaceutical company who seeks to obtain market access for its innovation. The stakes involved in their interaction are indeed high: The agency´s mission is to protect the health of millions of users of the product, whereas the company invested millions if not billions in its development. The agency decides its amount of investigational effort, which increases the probability of finding adverse drug reactions leading to the denial of market access. The company invests in lobbying, arguing that a denial causes avoidable deaths and suffering. The outcome of this interaction are two stable Nash equilibria which are displaced by a number of exogenous changes, notably avoidable deaths and suffering as e.g. during a pandemic. Available empirical evidence supports the predictions derived from the model, which also have implications for public policy.