the problematic incentives of government regulation: examples from hairdresser licensing and the fda...

The Problematic Incentives of Government Regulation:

Examples from Hairdresser Licensing and the FDA

Presentation by Prof. Howard Baetjer

Econ 640, April 23, 2007

Hairdresser licensing

• What is its avowed purpose?

• How does it work -- what are the institutions?

• What groups are most affected by it?

• Sharissa’s story

• What are the incentives for licensed hairdressers under this institution?

Hairdresser licensing

• What appears to be the actual purpose of hairdresser licensing?

• Some detail on Maryland’s licensing law

• The capture theory of regulation

• Legal institutions

• Informal institutions

• Market (for profit) institutions

Are there civil society alternatives

to hairdresser licensing?

• Legal institutions – tort liability

• Informal institutions – reputation – word of mouth

• “Time wounds all heels”

• Market institutions– intermediaries that

provide information• salons• beauty schools

(certification)

– information vendors • like Consumer Reports

– insurance companies

Civil society alternatives to hairdresser licensing

• Legal institutions

• Informal institutions• Market institutions

Are there civil society alternatives to pharmaceutical regulation?

• Legal institutions – tort liability

• Informal institutions – reputation

• for all parties • (connected directly to

stock price)

– word of mouth • “Time wounds all

heels”

• Market institutions– intermediaries that

provide information• hospitals • pharmacists• doctors

– information vendors • e.g. Consumer Reports• Underwriters’ Laboratory

equivalent

– insurance companies• for intermediaries• for drug companies

Civil society alternatives to pharmaceutical regulation

Examples of Type II errors by FDA Drug or device

Length of approval delay

Estimated consequences

Thrombolytic therapydissolves blood clotsInterleukin-2*treats kidney cancer

Misoprotolprevents bleeding ulcersAmbuCardioPump**Emergency room CPR device

Home HIV test

* Already available in Europe** Available in most industrialized nations




Thrombolytic therapydissolves blood clots

2 years

Interleukin-2*treats kidney cancer


Home HIV test






2 years up to 22,000 deaths



Home HIV test








Nov. 1988 – May 1992


Home HIV test








Nov. 1988 – May 1992

3500 deaths


Home HIV test








Nov. 1988 – May 1992

3500 deaths

Misoprotolprevents bleeding ulcers

9 ½ months

AmbuCardioPump**Emergency room CPR device

Home HIV test








Nov. 1988 – May 1992

3500 deaths


9 ½ months 8000 – 15000 deaths


Home HIV test








Nov. 1988 – May 1992

3500 deaths




not approved

Home HIV test








Nov. 1988 – May 1992

3500 deaths




not approved7000 deaths

annually

Home HIV test








Nov. 1988 – May 1992

3500 deaths





annually

Home HIV test 5 years








Nov. 1988 – May 1992

3500 deaths





annually

Home HIV test 5 years 10,000 infections


the problematic incentives of government regulation: examples from hairdresser licensing and the fda...

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