I'm a big fan of Boldrin/Levine but suspect they're wrong about this. The reason medical investigation is so expensive is because there's so much red tape around it in the form of approvals, and the convoluted systems health coverage in the developed world. It's a classic insiders' club. People got institutionalised into the culture, and then can swap between government and industry. There's no strong incentive for anyone in the game to keep costs down. Much more important for the insiders that the barriers remain high.
But there is a reasonable expectation that a pill your doctor prescribes will not kill you (with few notable exceptions). This is a good thing. Who is better at safety, the "free market" or the government?
Why do you quote free market and not the government. Neither one has any interest in actually promoting safety- both are only interested in security theater or protecting their bottom line. See the profitable war on drugs or the TSA. I really don't know the answer to the question, but the clear victor certainly isn't the government.
