The U.S. Food and Drug Administration (FDA) has a wide scope of regulatory authority via the federal government. In addition to food and drugs, the FDA regulates biologics, medical devices, cosmetics, veterinary products, tobacco products, alcohol, and more. This amount of regulation is normally thought of being in place for the benefit of the public interest. Such regulations protect the public from consuming unsafe food materials. In countries without such regulatory boards, disease is spread more easily and there are higher death rates. This is justification for arguing in favor of FDA regulations on the basis of protecting the public's interest. When Americans think of the FDA, they generally think of the administration's importance on these lines of thinking.
However, Stigler would provide another explanation for the high amount of FDA regulation: the capture theory. This theory, coined because the industry "captures" the government, is that regulations benefit industry and are therefore rational to desire on the industry's side. In this case, Stigler would argue the FDA's regulations benefit the industries in which they are found. For example, companies could potentially benefit from FDA regulations if they restrict entry and thus lower the supply of the good. This would create true economic profit in the form of rent for the companies.
A counterargument to this is some biopharmaceutical industry members arguing that the FDA regulatory process diminishes their businesses' value by increasing the time it takes for new drugs to get approved. In this case, Stigler would argue regulations are not rational under this theory as they do not benefit the industry.
1 comment:
I strongly agree with your statement that FDA regulations support Stigler's Capture Theory. Moreover, most of these regulations focus on entry control, preferred by industries according to Stigler, because they ensure profit-maximization over longer periods unlike other types of regulation like cash subsidies or price fixing .
I came across an article directly related to this topic. On May this year, the FDA announced changes to the regulations of sale and consumption of e-cigarettes. Regulations now prohibit their sale to minors (under 18) and require printed health warnings. They also forbid e-cigarettes to be placed in vending machines or distributed via free samples.
The regulations were imposed on the base of a "public interest" argument; policy makers are afraid that these products will undermine the enormous progress they have made and the main concern is that e-cigarettes may be sucking kids into the market. However, Stigler states that "the protection of the public" is usually the reason for many regulations when, in fact, they can be traced back to the capture theory. Some researchers are rather concerned that the new regulations may make it harder for smokers to obtain a safer alternative to traditional cigarettes. Some believe that the FDA announcement have good and bad aspects because even though they're limiting access to the youth, other markets of similar products require even more efforts of regulation than e-cigarettes for the protection of the public. They believe policy makers should focus on "the real deal" and make heavier regulations to the consumption of tobacco cigarettes instead, which research has proved are a lot more harmful to the public than their alternatives. Nonetheless, regulations on the tobacco industry don't seem to be the main target of policy makers at this moment. Any guesses why?
Links:
http://www.usnews.com/news/articles/2016-05-05/obama-administration-announces-new-rules-for-e-cigarette-tobacco-products
http://dailycaller.com/2016/05/07/experts-savage-fdas-most-ridiculous-claim-about-e-cigarette-regulation/
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