Dear all,
Please join us for the Applied Statistics Workshop (Gov 3009) this
Wednesday, February 13 from 12.00 - 1.30 pm in CGIS Knafel Room 354. Daniel
Carpenter <http://www.gov.harvard.edu/people/faculty/daniel-carpenter>, the
Allie S. Freed Professor of Government from the Department of Government at
Harvard University, will give a presentation entitled "R&D Abandonment in
Regulatory Equilibrium: Evidence from Asset Price Shocks Induced by FDA
Decisions". As always, a light lunch will be provided.
Abstract:
Observers of approval regulation regimes such as FDA
drug review have long
proposed that they cause private companies to avoid developing new products
that would otherwise have been marketed. The welfare conclusions and policy
recommendations vary, but the causal claim is common. Yet most such claims
suffer from the problem of endogeneity and non-random assignment, such that
the necessary counterfactual cannot be sustained. If a regulatory decision
occurs and drug projects are discontinued or delayed, the analyst cannot
usually infer whether it was a change in regulation or something else that
caused the project abandonment. Using a rich dataset on the development of
over 15,000 pharmaceutical investment projects from 1989 to 2003, we
examine responses in development projects to "bad news" regulatory
announcements weighted by the asset price shocks in a general equilibrium
financial market. Using a Lévy process model of asset price evolution, we
demonstrate that the abrupt changes in sponsor asset prices upon the
announcement of adverse regulatory news are plausibly non-anticipable for
all participants but the regulator. Specifically, for the development
projects of companies other than the sponsor affected, they are
quasi-random, conditional on all information known on the day before the
announcement. This assumption is supported by analysis of data, and then
used to identify a model of regulatory effects upon drug development. The
results suggest robust effects of induced project abandonment by regulatory
decisions; a ten percent (negative) shock to the sponsor's asset price in
response to adverse FDA news is sufficient to induce a three to four
percent increase in the hazard rate of drug project discontinuation for all
other firms' projects in the months following the news. While some
immediate responses to adverse regulatory news are witnessed, most response
takes place in a six month period following the event. Effects are larger
for bad news from advisory committee decisions and FDA requests for
additional data, and are negative (development-facilitating) for surprise
other-company abandonments where FDA factors are implicit. The results are
generally supportive of dominant theoretical models of endogenous approval
regulation (Carpenter and Ting 2007), but policy implications are unclear
and depend upon the potential health and welfare effects of the therapies
foregone.
An up-to-date schedule for the workshop is available at
http://events.iq.harvard.edu/events/node/1208.
Best,
Konstantin
--
Konstantin Kashin
Ph.D. Candidate in Government
Harvard University
Mobile: 978-844-0538
E-mail: kkashin(a)fas.harvard.edu
Site:
http://www.konstantinkashin.com/<http://people.fas.harvard.edu/%7Ekkashi…