Research Handbook on Public Choice and Public Law

Research Handbook on Public Choice and Public Law

Research Handbooks in Law and Economics series

Edited by Daniel A. Farber and Anne Joseph O’Connell

Public choice theory sheds light on many aspects of legislation, regulation, and constitutional law and is critical to a sophisticated understanding of public policy. The editors of this landmark addition to the law and economics literature have organized the Handbook into four main areas of inquiry: foundations, constitutional law and democracy, administrative design and action, and specific statutory schemes. The original contributions, authored by top scholars in the field, provide helpful introductions to important topics in public choice and public law while also exploring the institutional complexity of American democracy.

Chapter 12: Reputation, Information and Confidence: The Political Economy of Pharmaceutical Regulation

Daniel Carpenter

Subjects: economics and finance, public choice theory, politics and public policy, public choice


Daniel Carpenter1 The basic structure of pharmaceutical regulation differs in several crucial respects from the governance of other goods and other economies. The most salient contextual distinction concerns the pervasive uncertainty that governs pharmaceuticals – neither producers nor consumers nor regulators can be said to know with plausible certainty the quality or hazards of a drug product. The fundamental dynamic is far more than asymmetric information; it is also that no participant in the game of pharmaceutical regulation can be said to know the true quality of any drug. The most salient institutional distinction rests in gatekeeping: the necessity of governmental pre-market review for new products, where any approval is based in part upon an experimental (non-market) history of the product. This gatekeeping feature of pharmaceutical regulation is adopted by nation states and regional federations around the globe, and this fact gestures less to the pure optimality of these arrangements than to the symbolic centrality of the American example (Carpenter 2010, chapter 11). In the United States, the gatekeeping role is played by the US Food and Drug Administration (FDA), a storied organization that exercises significant administrative discretion and has deeply shaped the laws and regulations by which it has been given regulatory authority (Marks 1997; Carpenter 2001, 2010; Carpenter and Sin 2007). The emergence of gatekeeping power at the FDA is one of the most compelling narratives in American public law over the past century, and for students of public choice, gatekeeping power fascinates because it fundamentally shapes and reorders...

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