Reputation and Regulation

From a podcast with Russ Roberts and Mike Munger on ride-sharing and apartment-sharing services.

[Mike]It’s actually subversive of the state’s sort of traditional role of licensing and restricting access. And now we have–the whole world is basically Rotten Tomatoes, where you get by on peer to peer information about reviews, not just the reducing of transactions costs. But the quality. [Russ] Your reference to Rotten Tomatoes, I assume, is to the film site. Not to the– [Mike] Yeah, I try that in class sometimes. I ask my class what would happen if there were no FDA (Food and Drug Administration). It would be the Wild West. All sorts of drugs would be out there. You wouldn’t know what to do. And I say, Yes; what if there were no Federal agency in charge of reviewing movies? And they look at me and say, Well, there isn’t one.

But would we want a decentralized system for reviewing drugs? Do I trust a system that is not dominated by experts?

17 thoughts on “Reputation and Regulation

  1. If a lot of people only trusted a rating agency ‘dominated by experts’, I am certain one would exist. Probably more than one. And that’s kind of the point, isn’t it?

    • Right. Think Underwriter Laboratories or Consumer Reports rather than TripAdvisor.

  2. For something like drugs, it seems like it would be difficult to aggregate anecdotal reports about their effects into something that resembles controlled studies about effectiveness. Seems like this is where we’re at today with various food supplements – hard to know anything solid about what they might do or not do. It does seem a bit wild west.
    Whereas for movies, essentially it’s all anecdotes, and that’s ok. Though there is the MPAA and film ratings, which I guess is some sense is run by “experts”.

    • I see two problems with expert reviewers such as the the FDA. One is that experts cannot seem to say ‘I don’t know’ and ‘I’m not sure.’

      The other (if it could possibly happen) is that when the experts are wrong the wrongness carries the weight of expertise.

    • This is how it started and hiw it continues with the drugs that get pulled. Both approaches are needed- limited high control followed by broad feedback.

      • To put a fine point on it: how many people died from Vioxx because we didn’t acknowledge we already have a Rotten Tomatoes system and improve it rather than having its sensitivity only be only to detect total disaster?

    • “It seems like it would be difficult to aggregate anecdotal reports about their effects into something that resembles controlled studies about effectiveness”

      You are right, at least about the ‘controlled studies’ part, but for what it’s worth, I’ll leave this here: http://www.erowid.org fits your description to some extent.

  3. I tend to think that restaurant reviews are a slightly better analogy than movie reviews. For example, both restaurant meals and drugs are ingested and are somewhat-to-very likely have repeat business.

    Or do I trust financial planners (who, unlike advisers, have no fiduciary duty towards clients and are correspondingly cheaper to work with) without comprehensive Federal regulation and oversight?

  4. The FDA experts ultimately follow politicial direction, direction by politicians. Also bad, the FDA is a giant bureacracy which defends its interests to exclude a reasonable balancing of risk vs reward. The FDA is all for safety despite removing or restricting drugs which benefit a great number of informed people, but not a great percentage of the population. The safest policy for the FDA bureaucracy is to restrict all drugs, removing all blame from the FDA as an oversight agency. It must be annoying to them that they can’t follow that safe path.

    For example, many useful drugs with low profit margins are disappearing or have interrupted production because the FDA wants more inspections and restrictions.

    ( http://www.washingtonpost.com/national/shortages-of-key-drugs-endanger-patients/2011/04/26/AF1aJJVF_story.html )
    === ===
    [edited] Some industry representatives blame part of the problem [drug shortages] on increased oversight by the FDA [and greater expense], which has made drug safety a higher priority after coming under intense criticism for being too lax.

    “As you know right now, FDA has taken a heightened approach towards drug safety,” said Maya Bermingham, senior assistant general counsel at the Pharmaceutical Research and Manufacturers of America. “FDA has stepped up inspections. The more you look, the more you may discover problems.”
    === ===

    The FedGov hates monopoly, except where there is bureaucratic or political gain.

    It is ironic that homeopathic and “natural” medicines of little value are politically protected by public outcry. It is only the complex drugs with real effects (and so real side effects) which are restricted or banned by the FDA monopoly on safety.

  5. No experts is a straw man. Let the FDA accept applications. They can even have an FDA approved TM to stamp on medicines they deen safe. We the people can take it from there…

    • Your comment is unclear. I guess I may be thinking the same as you, but I will try to express myself more clearly.

      Let the FDA evaluate drugs and put their stamp of approval on the ones it deems acceptable.

      But do not give the FDA the power to determine whether a drug may be on the market or not.

      The FDA would simply advise consumers. It could be one of many advisers, if private profit or non-profit drug rating companies were to appear.

      • John W:

        Interesting that I read that comment differently. I thought he meant that the FDA could accept applications from expert organizations to review drugs and license the FDA’s trademark of approval to the approved organizations. Your reading makes more sense of the actual comment, though.

        Max L.

  6. Reputational reviews only work when (a) evaluators have a clue (the expert problem) and (b) their evaluations are aligned with both the questioner’s needs and social needs.

    Always remember that while one key function of the FDA is to make it safer for you to take meds, another key function is to make safer for *me* when *you* take meds. Reviewers of a pain med might not care or report that it makes them unfit to drive or prone to outbursts of homicidal behavoir – but the rest of us do.

  7. There a big difference between evaluating for taste and quality and evaluating for safety and effectiveness. Decentralized consumer-review systems are good for the former, but expert regulators are good for the latter.

    Consider automobiles.

    If you want to know which car has the best style and handling, you can pick up a lot of good information from car and driver, the truth about cars, or various online forums.

    If you want those cars – indeed all cars on the market – to reliably save your life and be able to take head-on collisions at high velocity, then the National Highway Traffic Safety Administration is a better bet. One needs the right mix of both.

    • I worked for a company that did its own safety testing on the product. The testing we did was far superior to what competitors did. What competitors did was what the government used. My company lobbied to install our testing but the competitors lobbied against it. I suspect that since our quality reputation partly based on our superior testing was a competitive advantage is why we didn’t lobby harder. But I’m not sure about that last part, but sure enough for me.

  8. Consider sites like thesweethome.com – there’s quite a few of them now and it’s something I’ve wanted for a long time. When I’m looking to purchase something, I want to know what’s the best and I’m willing to trust a self-described expert if they provide sufficient evidence that they do in-fact possess sufficient expertise.

    These sites are providing evidence that’s nearly as strong as randomized controlled trials, or the analogous type of experiment for non-clinical studies. And the fact that there are multiple such sites effectively competing with each other should improve the info they provide overall.

    There’s almost certainly alternative means of financing and administering rational investigation of nearly any topic, other than FDA-style models. Just look at the kosher-food ‘regulatory agencies’ – it’s definitely different, but not obviously worse.

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