Searching for Justification of the Policy of Pre-Market Approval of Pharmaceuticals

Abstract

In the United States and most other wealthy nations, all drugs are banned unless individually permitted. This policy, called pre-market approval, is controversial among economists; the preponderance of the economics literature that offers a judgment on pre-market approval is critical of the policy, but surveys of U.S. economists show that many, perhaps a majority, support pre-market approval. Here I analyze the results of a recent survey that asked economists who support pre-market approval to justify, with reference to the economic concept of market failure, their support of the policy. I find that, while almost all the economists surveyed could point to a market failure or failures that may plausibly exist and affect the market for pharmaceuticals, none were able to make a well reasoned connection between those market failures and the particular remedy of pre-market approval. None of the economists surveyed cited in support of their position any literature specific to pre-market approval. I supplement the survey findings with a review of relevant reading material assigned in health economics courses at top universities, searching that material for discussions of what may justify pre-market approval. I find a strong argument that the prospect of overt disasters being caused by avoidable mistakes can justify some intervention in pharmaceuticals; however, I find little to justify the other interventions that are part of pre-market approval. I suggest that future inquiry into possibilities for liberalizing reform concentrate on understanding matters such as the informational effects of product bans, the distinction between safety and efficacy, the nature of demand for drugs about which little is known, and the political economy of drug substitutes.