Research and the Approval Process: The Organization of Persuasion
- (pp. 911-55)
Abstract
An informer sequentially collects and disseminates information through costly research to persuade an evaluator to approve an activity. Payoffs and control rights are split between informer and evaluator depending on the organizational rules governing the approval process. The welfare benchmark corresponds to Wald's classic solution for a statistician with payoff equal to the sum of informer and evaluator. Organizations with different commitment power of informer and evaluator are compared from a positive and normative perspective. Granting authority to the informer is socially optimal when information acquisition is sufficiently costly. The analysis is applied to the regulatory process for drug approval.Citation
Henry, Emeric, and Marco Ottaviani. 2019. "Research and the Approval Process: The Organization of Persuasion." American Economic Review, 109 (3): 911-55. DOI: 10.1257/aer.20171919Additional Materials
JEL Classification
- D82 Asymmetric and Private Information; Mechanism Design
- D83 Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
- I18 Health: Government Policy; Regulation; Public Health
- L51 Economics of Regulation
- L65 Chemicals; Rubber; Drugs; Biotechnology; Plastics
- O31 Innovation and Invention: Processes and Incentives