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2019

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Information Release, Innovation Diffusion, and Welfare Analysis: Evidence from Mandatory Disclosure of Clinical Trials

by Seungjoon Oh, PHBS

Tuesday, March 26, 2019 | 12:30pm-1:30pm | Room 763, HSBC Business School Building


Abstract


Using the Section 801 of the Food and Drug Administration Amendments Act of 2007 (FDAAA 801) that substantially increases the pressure for drug developers to disclose clinical trial plans and results publicly as identification, we provide novel evidence that increased information transparency accelerates innovative activities. Specifically, we find that the amount of time to proceed to the next phase decreases but the project suspension probability increases following the regulation policy change. These effects are stronger when there are more projects and firms targeting on similar indications. We also find evidence for information diffusion as firms’ suspension decisions become dependent on their peers' after the FDAAA. Finally, we analyze the social welfare and policy implications with the evidence that the FDAAA 801 helped improve drug quality conditioning on project continuation but may decrease overall quantities available in the market and thus negatively affect mortality and morbidity.
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