Regulatory Friction and Patent Value in Medical Device Market Authorization

Regulatory Friction and Patent Value in Medical Device Market Authorization | Research Square window.SnipcartSettings = { analytics: { enabled: false } }; (function() { var accessVector = localStorage.getItem('access_vector') || ''; window.dataLayer = window.dataLayer || []; if (accessVector) { window.dataLayer.push({ user: { profile: { profileInfo: { snid: accessVector } } } }); } })(); (function(w,d,s,l,i){w[l]=w[l]||[];w[l].push({'gtm.start':new Date().getTime(),event:'gtm.js'});var f=d.getElementsByTagName(s)[0],j=d.createElement(s),dl=l!='dataLayer'?'&l='+l:'';j.async=true;j.src='https://www.googletagmanager.com/gtm.js?id='+i+dl;f.parentNode.insertBefore(j,f);})(window,document,'script','dataLayer','GTM-K279D39R'); Browse Preprints In Review Journals COVID-19 Preprints AJE Video Bytes Research Tools Research Promotion AJE Professional Editing AJE Rubriq About Preprint Platform In Review Editorial Policies Our Team Advisory Board Help Center Sign In Submit a Preprint Cite Share Download PDF Research Article Regulatory Friction and Patent Value in Medical Device Market Authorization Andreas Peters This is a preprint; it has not been peer reviewed by a journal. https://doi.org/ 10.21203/rs.3.rs-9595872/v1 This work is licensed under a CC BY 4.0 License Status: Under Review Version 1 posted 4 You are reading this latest preprint version Abstract Regulatory economics has built a rigorous toolkit for the design of incentive instruments under asymmetric information, but the toolkit has been developed almost exclusively for ongoing rate regulation. Ex ante product-market authorization, an alternative incentive instrument that operates through approval delay and through residual approval friction rather than through ongoing rate adjustment, has received less comparable analytical treatment, although it raises the same welfare-economic question: whether the safety-screening benefit offsets the foregone innovation-incentive benefit. The present paper proposes a regulatory friction elasticity $\eta_{RF}=\partial \ln(V^{obs}/V^0)/\partial \ln D$, derived from a three-path valuation decomposition under a structural Bass-discount model. Under an exponential closure $\lambda(D)=\exp(-\alpha D)$, in which $\alpha$ enters as a transparent closure parameter rather than as an estimated structural coefficient, the elasticity admits a closed-form additive decomposition $\eta_{RF}=\eta_G+\eta_\lambda$ that separates a discount-and-shift channel from a residual-dissipation channel. Three structural properties hold within the maintained model: scale invariance, local computability, and parameter-set bounds under interval-valued inputs. A parallel welfare-counterpart elasticity $\eta_{PH}=\partial \ln(H^{obs}/H^0)/\partial \ln D$, defined as the net public-health elasticity that algebraically combines safety-screening gains and delayed-access losses, organises the regulator's welfare ledger around the threshold condition $\eta_{PH}\cdot H^{obs} + \eta_{RF}\cdot V^{obs} > 0$. Calibrated against public FDA, USPTO and EU regulatory-monitoring data over a transparent parameter envelope, the model implies an elasticity of approximately $-0.36$ for EU MDR Class III ($\alpha=0.10$) and $-0.18$ for US FDA PMA ($\alpha=0.05$) under the calibrations selected; a six-month MDR delay extension corresponds, under the baseline parameterisation, to roughly a 6.9 to 11.5 percent reduction in realized patent value. The MDR-FDA differential of approximately $-0.18$ decomposes by symmetric two-player attribution into roughly two-thirds delay and one-third residual friction within these calibrations. The framework is intended to transfer, with appropriate re-calibration, to other regulated settings in which in-force exclusivity and product-market authorization are governed by separate regimes, including pharmaceutical premarket approval and financial-product authorization regimes; the present paper develops only the medical-device case. JEL Classification: L51; L65; O31; O34; K23; D42. incentive regulation market authorization regulatory delay patent value medical devices Full Text Additional Declarations No competing interests reported. Supplementary Files supplementarymaterial1.zip Cite Share Download PDF Status: Under Review Version 1 posted Reviewers invited by journal 04 May, 2026 Editor assigned by journal 03 May, 2026 Submission checks completed at journal 03 May, 2026 First submitted to journal 02 May, 2026 You are reading this latest preprint version Research Square lets you share your work early, gain feedback from the community, and start making changes to your manuscript prior to peer review in a journal. As a division of Research Square Company, we’re committed to making research communication faster, fairer, and more useful. We do this by developing innovative software and high quality services for the global research community. Our growing team is made up of researchers and industry professionals working together to solve the most critical problems facing scientific publishing. Also discoverable on Platform About Our Team In Review Editorial Policies Advisory Board Help Center Resources Author Services Accessibility API Access RSS feed Manage Cookie Preferences © Research Square 2026 | ISSN 2693-5015 (online) Privacy Policy Terms of Service Do Not Sell My Personal Information {"props":{"pageProps":{"initialData":{"identity":"rs-9595872","acceptedTermsAndConditions":true,"allowDirectSubmit":false,"archivedVersions":[],"articleType":"Research Article","associatedPublications":[],"authors":[{"id":634883418,"identity":"d44a5faa-297a-44d0-9d69-d3a7379457c6","order_by":0,"name":"Andreas Peters","email":"data:image/png;base64,iVBORw0KGgoAAAANSUhEUgAAAZAAAAAyAQMAAABI0h/eAAAABlBMVEX///8AAABVwtN+AAAACXBIWXMAAA7EAAAOxAGVKw4bAAAA4ElEQVRIie2PPQrCQBBGVxZSbUybIOoVRgLaCLnKLoKVhWCTwkIIaONPnVvkCLMsmCZgayVqLhC7VGK0VFhjZ7GvGobvMfMRYjD8Mw6liGRaTVgn/gx5K4sjgV8UOLAqX0dxFrbMi/AUeBG7YQlDsUV6uR41iovNEWA2EztqJ3INYxGj5fsT7VOs78ol515kJ4qAEgkyq6VTusgGpbzzABQ711OgukLkgjcSxUg9paeaIzfbcxFHFjy7+LH60qWTbmQRznngOCovynDY3qbRJdfWp+xjo4u/+FAMBoPB8MYDJlZR3BYfuQMAAAAASUVORK5CYII=","orcid":"","institution":"University of Applied Sciences Rosenheim","correspondingAuthor":true,"prefix":"","firstName":"Andreas","middleName":"","lastName":"Peters","suffix":""}],"badges":[],"createdAt":"2026-05-02 18:39:40","currentVersionCode":1,"declarations":"","doi":"10.21203/rs.3.rs-9595872/v1","doiUrl":"https://doi.org/10.21203/rs.3.rs-9595872/v1","draftVersion":[],"editorialEvents":[],"editorialNote":"","failedWorkflow":false,"files":[{"id":109068254,"identity":"8dd9135a-8295-4673-9f15-f9f19f702955","added_by":"auto","created_at":"2026-05-12 10:05:03","extension":"pdf","order_by":1,"title":"","display":"","copyAsset":false,"role":"manuscript-pdf","size":602801,"visible":true,"origin":"","legend":"","description":"","filename":"regulatoryfrictionpaperjregeconFINAL3.pdf","url":"https://assets-eu.researchsquare.com/files/rs-9595872/v1_covered_c1d8ae7b-ad16-4ff5-8ce4-f5982991642e.pdf"},{"id":109044172,"identity":"cee87e03-5ec5-4fbe-9c63-4805d1d8f25c","added_by":"auto","created_at":"2026-05-12 04:57:29","extension":"zip","order_by":0,"title":"","display":"","copyAsset":false,"role":"supplement","size":14987,"visible":true,"origin":"","legend":"","description":"","filename":"supplementarymaterial1.zip","url":"https://assets-eu.researchsquare.com/files/rs-9595872/v1/da701b23e6d757aabe859a88.zip"}],"financialInterests":"No competing interests reported.","formattedTitle":"Regulatory Friction and Patent Value in Medical Device Market Authorization","fulltext":[],"fulltextSource":"","fullText":"","funders":[],"hasAdminPriorityOnWorkflow":false,"hasManuscriptDocX":false,"hasOptedInToPreprint":true,"hasPassedJournalQc":"","hasAnyPriority":false,"hideJournal":false,"highlight":"","institution":"","isAcceptedByJournal":false,"isAuthorSuppliedPdf":true,"isDeskRejected":"","isHiddenFromSearch":false,"isInQc":false,"isInWorkflow":false,"isPdf":true,"isPdfUpToDate":true,"isWithdrawnOrRetracted":false,"journal":{"display":true,"email":"[email protected]","identity":"journal-of-regulatory-economics","isNatureJournal":false,"hasQc":true,"allowDirectSubmit":false,"externalIdentity":"rege","sideBox":"Learn more about [Journal of Regulatory Economics](http://link.springer.com/journal/11149)","snPcode":"11149","submissionUrl":"https://submission.nature.com/new-submission/11149/3","title":"Journal of Regulatory Economics","twitterHandle":"","acdcEnabled":true,"dfaEnabled":true,"editorialSystem":"em","reportingPortfolio":"Springer Hybrid","inReviewEnabled":true,"inReviewRevisionsEnabled":false},"keywords":"incentive regulation, market authorization, regulatory delay, patent value, medical devices","lastPublishedDoi":"10.21203/rs.3.rs-9595872/v1","lastPublishedDoiUrl":"https://doi.org/10.21203/rs.3.rs-9595872/v1","license":{"name":"CC BY 4.0","url":"https://creativecommons.org/licenses/by/4.0/"},"manuscriptAbstract":"\u003cp\u003eRegulatory economics has built a rigorous toolkit for the design of incentive instruments under asymmetric information, but the toolkit has been developed almost exclusively for ongoing rate regulation. Ex ante product-market authorization, an alternative incentive instrument that operates through approval delay and through residual approval friction rather than through ongoing rate adjustment, has received less comparable analytical treatment, although it raises the same welfare-economic question: whether the safety-screening benefit offsets the foregone innovation-incentive benefit. The present paper proposes a regulatory friction elasticity $\\eta_{RF}=\\partial \\ln(V^{obs}/V^0)/\\partial \\ln D$, derived from a three-path valuation decomposition under a structural Bass-discount model. Under an exponential closure $\\lambda(D)=\\exp(-\\alpha D)$, in which $\\alpha$ enters as a transparent closure parameter rather than as an estimated structural coefficient, the elasticity admits a closed-form additive decomposition $\\eta_{RF}=\\eta_G+\\eta_\\lambda$ that separates a discount-and-shift channel from a residual-dissipation channel. Three structural properties hold within the maintained model: scale invariance, local computability, and parameter-set bounds under interval-valued inputs. A parallel welfare-counterpart elasticity $\\eta_{PH}=\\partial \\ln(H^{obs}/H^0)/\\partial \\ln D$, defined as the net public-health elasticity that algebraically combines safety-screening gains and delayed-access losses, organises the regulator's welfare ledger around the threshold condition $\\eta_{PH}\\cdot H^{obs} + \\eta_{RF}\\cdot V^{obs} \u0026gt; 0$. Calibrated against public FDA, USPTO and EU regulatory-monitoring data over a transparent parameter envelope, the model implies an elasticity of approximately $-0.36$ for EU MDR Class III ($\\alpha=0.10$) and $-0.18$ for US FDA PMA ($\\alpha=0.05$) under the calibrations selected; a six-month MDR delay extension corresponds, under the baseline parameterisation, to roughly a 6.9 to 11.5 percent reduction in realized patent value. The MDR-FDA differential of approximately $-0.18$ decomposes by symmetric two-player attribution into roughly two-thirds delay and one-third residual friction within these calibrations. The framework is intended to transfer, with appropriate re-calibration, to other regulated settings in which in-force exclusivity and product-market authorization are governed by separate regimes, including pharmaceutical premarket approval and financial-product authorization regimes; the present paper develops only the medical-device case.\u003c/p\u003e\n\u003cp\u003eJEL Classification: L51; L65; O31; O34; K23; D42.\u003c/p\u003e","manuscriptTitle":"Regulatory Friction and Patent Value in Medical Device Market Authorization","msid":"","msnumber":"","nonDraftVersions":[{"code":1,"date":"2026-05-12 04:57:25","doi":"10.21203/rs.3.rs-9595872/v1","editorialEvents":[{"type":"communityComments","content":0},{"type":"reviewersInvited","content":"","date":"2026-05-04T18:15:07+00:00","index":"","fulltext":""},{"type":"editorAssigned","content":"","date":"2026-05-03T12:28:59+00:00","index":"","fulltext":""},{"type":"checksComplete","content":"","date":"2026-05-03T12:28:41+00:00","index":"","fulltext":""},{"type":"submitted","content":"Journal of Regulatory Economics","date":"2026-05-02T18:29:13+00:00","index":"","fulltext":""}],"status":"published","journal":{"display":true,"email":"[email protected]","identity":"journal-of-regulatory-economics","isNatureJournal":false,"hasQc":true,"allowDirectSubmit":false,"externalIdentity":"rege","sideBox":"Learn more about [Journal of Regulatory Economics](http://link.springer.com/journal/11149)","snPcode":"11149","submissionUrl":"https://submission.nature.com/new-submission/11149/3","title":"Journal of Regulatory Economics","twitterHandle":"","acdcEnabled":true,"dfaEnabled":true,"editorialSystem":"em","reportingPortfolio":"Springer Hybrid","inReviewEnabled":true,"inReviewRevisionsEnabled":false}}],"origin":"","ownerIdentity":"d5d49bd8-0b86-4922-96e6-c05b0cd1c2b7","owner":[],"postedDate":"May 12th, 2026","published":true,"recentEditorialEvents":[{"type":"reviewersInvited","content":"8","date":"2026-05-04T18:15:07+00:00","index":"","fulltext":""},{"type":"editorAssigned","content":"","date":"2026-05-03T12:28:59+00:00","index":"","fulltext":""},{"type":"checksComplete","content":"","date":"2026-05-03T12:28:41+00:00","index":"","fulltext":""},{"type":"submitted","content":"Journal of Regulatory Economics","date":"2026-05-02T18:29:13+00:00","index":"","fulltext":""}],"rejectedJournal":[],"revision":"","amendment":"","status":"under-review","subjectAreas":[],"tags":[],"updatedAt":"2026-05-12T04:57:25+00:00","versionOfRecord":[],"versionCreatedAt":"2026-05-12 04:57:25","video":"","vorDoi":"","vorDoiUrl":"","workflowStages":[]},"version":"v1","identity":"rs-9595872","journalConfig":"researchsquare"},"__N_SSP":true},"page":"/article/[identity]/[[...version]]","query":{"redirect":"/article/rs-9595872","identity":"rs-9595872","version":["v1"]},"buildId":"XKTyCvWXoU3ODBz1xrDgd","isFallback":false,"isExperimentalCompile":false,"dynamicIds":[84888],"gssp":true,"scriptLoader":[]}