TY  - JOUR
AU  - Philipson, Tomas J
AU  - Sun, Eric C
AU  - Goldman, Dana
TI  - The Effects of Product Liability Exemption in the Presence of the FDA
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 15603
PY  - 2009
Y2  - December 2009
DO  - 10.3386/w15603
UR  - http://www.nber.org/papers/w15603
L1  - http://www.nber.org/papers/w15603.pdf
N1  - Author contact info:
Tomas Philipson
Irving B. Harris Graduate School
of Public Policy Studies
University of Chicago
1155 E. 60th Street
Chicago, IL 60637
Tel: 773/502-7773
E-Mail: t-philipson@uchicago.edu

Eric C. Sun
2940 South Ct
Palo Alto, CA 94306
E-Mail: ericsun@uchicago.edu

Dana Goldman
Schaeffer Center for Health Policy and Economics
University of Southern California
635 Downey Way
Los Angeles, CA 90089-3333
Tel: (213) 821-7948
Fax: (213) 740-3460
E-Mail: dana.goldman@usc.edu
M1  - published as Tomas J. Philipson, Eric Sun, Dana Goldman. "The Effects of Product Liability Exemption in the Presence of the FDA," in Daniel P. Kessler, editor, "Regulation vs. Litigation: Perspectives from Economics and Law" University of Chicago Press (2011)

M3  - presented at "Regulation and Litigation Conference", September 11-12, 2009
AB  - In the United States, drugs are jointly regulated by the US Food and Drug Administration, which oversees premarket clinical trials designed to ensure drug safety and efficacy, and the liability system, which allows patients to sue manufacturers for unsafe drugs. In this paper, we examine the potential welfare effects of this dual system aimed at ensuring the safety of medical products, and conclude that product liability exemptions for FDA regulated activities could raise economic efficiency. We show that while reductions in liability, such those associated with pre-emption, may lower welfare in the absence of the FDA, they may raise welfare in its presence. In the presence of the FDA, product liability may reduce efficiency by raising prices without pushing firms, who are already bound by the agency's requirements, to invest further in product safety. We consider as a case study the National Vaccine Injury Compensation Program, which sharply reduced vaccine manufacturer's liability in 1988. We find evidence that the program reduced prices without affecting vaccine safety, suggesting that liability reductions can enhance economic efficiency in the presence of the FDA.
ER  -