Duke 2008 | ASHE | Equity and Efficiency in Health and Healthcare

In the United States, the safety and efficacy of pharmaceuticals and medical devices are regulated by the Food and Drug Administration (FDA), which mandates clinical trials, and by the product liability system, which allows consumers to sue manufacturers for unsafe drugs and devices. In this paper, we begin by providing an overview of the regulation of medical devices and drugs. We then examine the welfare implications of this joint regulation of, specifically focusing on conditions under which joint regulation of safety is less or more efficient relative to a pure-FDA or pure-product liability regime. In particular, we find that when the FDA mandates a level of safety that is greater than what manufacturers would choose to provide under product liability alone, the presence of product liability is inefficient because it has no effect on product safety and raises costs. We conclude with an analysis of the market for medical devices, as well as some preliminary estimates of the potential welfare gains that could accrue from a product liability exemption for medical devices.