[gov3009-l] Applied Statistics Workshop: Daniel Carpenter on Wed., Feb. 13

Konstantin Kashin kkashin at fas.harvard.edu
Mon Feb 11 02:04:14 EST 2013

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.


> 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


Konstantin Kashin
Ph.D. Candidate in Government
Harvard University

Mobile: 978-844-0538
E-mail: kkashin at fas.harvard.edu
Site: http://www.konstantinkashin.com/<http://people.fas.harvard.edu/%7Ekkashin/>
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