Optimal Liability for Off-Label Use of Drugs

• Applicant: Dr. Anja Olbrich
• Subject Area: Economic Theory
• Term: from 2007 to 2009
• Project identifier: Deutsche Forschungsgemeinschaft (DFG) - Project number 33504049

Drugs in Germany as well as in the USA are approved upon meeting particular standards of safety and effectiveness. After approval a manufacturer cannot be held liable for the patients damages if his product information is complete, i.e. comprising the dosage, known side-effects and interactions. The prescribing physician who correctly complies with the manufacturer¿s instructions can also not be held liable. By contrast, in case of an unapproved or off-label use of a drug, information about the drug¿s characteristics is not available. Physicians who prescribe such drugs expose themselves to the risk of liability for patients¿ damages. As a result the off-label provision causes two effects. If the approval procedure for a drug is unprofitable, the off-label usage generates a positive profit. This leads to future R&D investments and increases the welfare in the long run. Compared with this a loss of welfare arises due to the lack of safety tests and the changed liability responsibility. Therefore, manufacturers distribute too dangerous drugs. Due to this trade-off the total welfare effect is unclear. At least it has to be suspected that the lack of the manufacturers¿ responsibility for safety of their products is inefficient. In my research project I would like to determine the total welfare effect of the off-label provision. Out of an economic analysis an efficient regulation scheme will follow which may serve as a proposal for a change of the current rules. I plan to test empirically the derived theoretical results.

• DFG Programme: Research Fellowships
• International Connection: Norway
• Host: Professor Tor Iversen, Ph.D.