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Alex TETENOV (University of Bristol) – "An Economic Theory of Statistical Testing"
Time: 12:15 pm – 1:30 pm Attention reporté à 12:45
Date: 12th of June 2018
Place: Room 3001.
Alex TETENOV (University of Bristol) – “An Economic Theory of Statistical Testing”
This paper models the use of statistical hypothesis testing in regulatory approval. A privately informed agent proposes an innovation. Its approval is beneficial to the proponent, but potentially detrimental to the regulator. The proponent can conduct a costly clinical trial to persuade the regulator. I show that the regulator can screen out all ex-ante undesirable proponents by committing to use a simple statistical test. Its level is the ratio of the trial cost to the proponent’s benefit from approval. In application to new drug approval, this level is around 15% for an average Phase III clinical trial.
Laurent DAVEZIES (Laboratoire de Microéconométrie-CREST)
Arne UHLENDORFF (Laboratoire de Microéconométrie-CREST)