30 October 2009

American & European Risk Aversion

Marginal Revolution | Alex Tabarrok | Why are Americans more risk averse about medicine than Europeans?:

The stereotype is that Americans are more risk-loving and entrepreneurial than the less-rugged Europeans who instead seek shelter under the umbrella of the welfare state. Yet when I talk about the FDA I point out that for many decades (from say the late 1960s to PDUFA in 1993 and perhaps again more recently) the FDA lagged behind its European counterparts in approving new drugs. U.S. risk aversion in drug approvals is especially peculiar since the major scare which increased FDA powers and slowed down approvals was the thalidomide disaster but thalidomide was approved in Europe not in the U.S. Nevertheless, we were the ones who got scared. [...]

I think this is a puzzle. Why has the U.S. government been more risk averse with regard to medicine than European governments but less risk averse in other areas?
I think it's because European legislators generally have to be less responsive to voters. Or to frame it more kindly to the Europeans, our legislators have to be more demagogish. Even for a pretty non-partisan, technocratic process like the FDA, Congressmen know that if some drug slips through and there's a public outcry their heads might roll come November. The average European parliamentarian, and certainly MEPs, probably would face much less backlash from a botched drug approval.

Now it's been a very long time since I studied comparative government, and I'm also generalizing pretty widely, as one must when comparing the US to all of Europe, but this is where I'd lay my money.

We could test this hypothesis by comparing drug approval processes in countries with FDA-correlates which are comparatively more technocratic or more political and responsible to their legislatures, or by comparing countries with regularly scheduled elections to those without, or countries where votes are cast for a party or for a specific candidate. I would also imagine that FDA-correlates would take more risk in countries with proportional representation because any problems would not be as likely to blow back on specific parliamentarians.

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