FDA Serves Status

In June I wrote:

It seems to me that the FDA’s rare “reputation” that so impresses Carpenter was not for doing well at trading off social costs and benefits of regulation, but was instead a reputation for scientific prestige. Many folks care far more that the FDA exalted scientists, and that the US gained prestige via its prestigious scientists, than whether this regulatory regime was too strict or weak in terms of trading harm, health, and costs for US citizens.

New results confirm that FDA regulation is all about status:

Favorable [FDA] regulatory outcomes enjoyed by established firms have traditionally been considered the result of political capture. Alternatively, some scholars have argued that a firm’s reputation signals product quality to the regulator, which leads to better outcomes. …

An examination of 884 New Drug Approval (NDA) applications submitted to the FDA from 1990 to 2004 [found] … firms with higher status in the knowledge domain enjoyed faster review times for their drugs. A drug sponsored by a firm occupying a position in the top 15% of the knowledge hierarchy spends roughly two hundred days less in the regulatory review process compared with a drug from a median status firm. … High status firms are rewarded for pursuing new market niches that enhance the bureaucratic reputation of the FDA, and enjoy a smaller penalty when the FDA slows down approval after a significant product recall event. …

I find evidence that the regulatory advantages high status firms enjoy have less to do with the underlying quality of a specific product, and have more to do with the general identity of the firm in the broader knowledge domain. A firm’s status in the relevant therapeutic domain had a positive effect on review speed, but it was status accumulated in more basic scientific domains or unrelated therapy categories that had a larger effect on regulatory duration. Furthermore, status did not exhibit a strong correlation with observable measures of quality such as priority rating, suggesting that these status effects occur independent of actual differences in quality.  …

A [patent] citation from one organization to another signals an implicit acknowledgement of the importance of the citation-receiving organization, and suggests a certain deference5 by one organization to the other. …Therefore, I define status in the technology domain as … the proportion of citations a firm receives to all citations made to pharmaceutical firms in the sample five-year moving window.  (more)

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  • “all about status” is a bit of an overstatement given that a) the model fit improves only slightly when status enters and b) by the same logic you could say that investment banking (Podolny’s Status Signals), patent filings (ibid), California wineries (ibid), academic labor markets (Burris ASR 2004), and the Oscars (Rossman, Esparza, and Bonacich ASR 2010) are “all about status.” yes, these fields all involve fairly large status effects, but with the possible exception of academic labor markets it’s not most of the story, and I say that as the author of one of those status studies and an admirer of the others.

    also, you might be interested in the Waguespack and Sorenson Organization Science 2010 article on the MPAA finding that they tend to give more lenient film ratings to major studios

  • Proper Dave

    What is the definition of “status” is it the same as reputation or what?
    Obviously reputation would play a part and is not necessarily anti-meritocratic.

  • Gabriel, fair enough; Interesting results on movie ratings.

  • dave,
    the paper measures status as citations to the firm in other firms’ patent citations. this is similar to the metrics used in the rest of the status literature, most of which look for acts that indicate deference and then use that to infer a pecking order.

  • Hmm…seems to me that this correlation is quite likely the result of (perhaps non-optimal) other causal pathways instead of some direct status effect.

    For instance one might suppose that FDA regulators would be (unconsiously?) biased towards firms they have worked at, their friends are employed at, or employ scientists from their college/graduate school. If the FDA seeks to hire the most qualified regulators then they will tend to have more contacts at the higher status firms (sorting etc..) independent.

    Even if true, however, it’s likely a socially beneficial policy. By giving firms an incentive to do basic research they might not otherwise fund in the long term more lifesaving drugs may be developed. Indeed, if, as is likely, no explicit program of application prioritization would be efficient (too much overhead) it might not even sacrifice practically optimal resource distribution (just as good as the other options).

  • Does it bother anyone besides me that these anti-regulation posts are linked to and probably funded by by the Koch brothers and their enormous political lobbying machine?

    Given that this blog claims to be about honesty, shouldn’t this at least be prominently disclosed?

    More generally, how should someone interested in “overcoming bias” process the likely introduction of bias into research by funding sources? This problem is more general than private funding by rabid right-wing billionaires; people who take government money are also subject to influence.

    • Jess Riedel

      More generally, how should someone interested in “overcoming bias” process the likely introduction of bias into research by funding sources?

      See here, here, and here.

    • I don’t believe the blog itself is funded. The Koch brothers presumably don’t care about nerd games, men’s rights, the simulation argument or cryonics. I have heard they make use of internal markets within their own company though.

    • I find the vast sums spent by both the “liberal” Soros and libertarian Kochs of the world to be a tragedy in and of itself. This could be avoided if we would but get rid of vote-heavy democracy and replace it with less vote-intensive democracy, my favorite being random allotment.

      Truly, there’s too much money muddying the intellectual waters. However, this is a problem throughout the political sphere, and your presentation of it as being isolated to a particular philosophy is odd, to put it lightly.

      • I explicitly alluded to the funding problem being more general. But it’s the Kochs who fund the person who owns this blog (and his co-conspirators like Caplan, Kling, Cowan and many more).

        If I were in a similar position, I imagine I too would be producing research and writings that bolster my patron’s preferred ideology — everyone has to deal with that. But I like to thing I would be more scrupulous, rather than engaging in gross exaggeration in favor of my funding bias (I’m thinking of the line about FDA regulation being “all about status”, critiqued by others above).

        Some thoughts on voting (and in particular a critique of Caplan) here</a.

    • Okay. Now I know where credit is due.

      Actually, you can identify corporate toadies by their reluctance to mention ideas that a corporate supporter would not want mentioned such as “rent seeking” or “regulatory capture.” Both Overcoming Bias and Econlog mention those terms often. (There are think tanks that don’t mention those terms and any anti-corporate ire should be aimed in their direction.)

  • Doesn’t the applicant have a large impact on how long the review takes? I would assume they need to provide information to the FDA. I believe that they also run whatever studies the FDA deems necessary. Experienced companies would be better at doing this.

  • Stuart Armstrong

    New results confirm that FDA regulation is all about status:

    Rephrasing: New results confirm that FDA regulation is not completely divorced from status considerations.

    I don’t see anything here that can give a real estimate as to the relative magnitude of the effect.

  • I think the primary purpose of the FDA for the pharmaceutical companies is to serve as a barrier to entry for competitors. Unless you are already a large and successful pharmaceutical company you don’t have the reputation/status to get past the FDA.

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