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The Effect of Unannounced Inspection on Prevention of Drug Fraud

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Abstract

Alarge number of incidents related to fake/inferior-quality drugs have occurred in China in recent years. In order to reduce drug crimes, the China Food and Drug Administration (CFDA) has exploited the new supervision approach, i.e., unannounced inspection (UI), since September 2014. However, the effectiveness of UI in driving drug producers to put more effort into meeting the requirements of Good Manufacturing Practice (GMP) is yet to be ascertained. In this paper we apply game theory to study the effects of UI on the prevention of drug fraud, drug producers’ profits, and social welfare under scenarios of complete and incomplete information. We show that UI is not always an effective way of supervision. Specifically, if the upper bound on the punishment is not very large, UI can drive the firmto make the largest self-supervision effort only when the firm’s technical level is high and the supervision cost is low. Otherwise, UI cannot drive the firm to make the largest self-supervision effort. Under incomplete information, firms with a high technical level would adopt more self-supervision and make more profit than those with a low technical level. Moreover, we design a new mechanism under incomplete information that can incentive drug producers to make greater self-supervision effort to meet the requirements of GMP under certain conditions.

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Acknowledgements

We thank the anonymous reviewers for their helpful comments on our paper. This work was supported in part by the National Natural Science Foundation of China (grant numbers 71390334 and 71132008) and the Program for New Century Excellent Talents in University (NCET-13-0660).

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Authors and Affiliations

  1. School of Economics and Management, Beijing Jiaotong University, Beijing, 100044, China

    Manman Zhang, Juliang Zhang, Guowei Hua & Yi Liu

  2. Department of Logistics and Maritime Studies, The Hong Kong Polytechnic University, Kowloon, Hong Kong, China

    T.C.E. Cheng

  3. Academy of Mathematics and Systems Science, Chinese Academy of Sciences, Beijing, 100190, China

    Xiaojie Yan

Authors
  1. Manman Zhang
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Correspondence to Manman Zhang.

Additional information

Manman Zhang received the B.Sc. degree from Qufu Normal University, Shandong, China in 2012. She is currently a Ph.D. student at Beijing Jiaotong University, Beijing, China. Her current research interests include quality management and supply chain management.

Juliang Zhang received the M.Sc. degree from Qufu Normal University, Shandong, China in 1998, and the Ph.D. degree from the Academy of Mathematics and Systems Science, Chinese Academy of Sciences, Beijing, China in 2001. He is currently a professor of supply chain and logistics in Beijing Jiaotong University, Beijing, China. He is a member of IEEE, a member of the Teaching Guidance Committee of Logistics Management and Engineering of the Ministry of Education. He is an active researcher and has published over 100 papers in the past ten years. His currently research interests include supply chain management, logistics, operations research, and so on.

T.C.E. Cheng received the B.Sc. degree from the University of Hong Kong, Hong Kong, China in 1979, the M.Sc. degree from the University of Birmingham, U.K. in 1980, the Ph.D. and Sc.D. degrees from the University of Cambridge, U.K. in 1984 and 2007, respectively. He is currently Chair Professor of Management and Dean of the Faculty of Business, and Fung Yiu King-Wing Hang Bank Professor in Business Administration in The Hong Kong Polytechnic University. He was rated as the most prominent author in Operations Management research in Asia over 2001–2015. Also, he was named one of the “most cited scientists" in all fields, in computer science, in economics and business, and in engineering over 2008–2018. His currently research interests include e-business and e-commerce, information systems management, innovation and technology management, operations management, quality management, scheduling science, and supply chain management.

Guowei Hua received the B.Sc. degree from Shandong Normal University, Shandong, China in 1997, the M.Sc. degree from Beijing University of Chemical Technology, Beijing, China in 2006, and the Ph.D. degree from the Academy of Mathematics and Systems Science, Chinese Academy of Sciences, Beijing, China in 2009. He is currently a professor of logistics and supply chain, and Vice Dean of the School of Economics and Management, Beijing JiaotongUniversity, Beijing, China. He is the senior member of IEEE. His currently research interests include logistics and supply chain management, low-carbon operations management, logistics system optimization design, and so on.

Xiaojie Yan received the B.Sc. and Ph.D. degrees from Beijing Jiaotong University, Beijing, China in 2010 and 2017, respectively. She is a postdoctoral fellow in the Academy of Mathematics and Systems Science, Chinese Academy of Sciences, Beijing, China. Her current research interests include pricing and inventory management, coordination and cooperation in supply chains, game theory, and mechanism design.

Yi Liu received the B.Sc. degree from Shandong University, Shandong, China in 2012. He is currently a Ph.D. student at Beijing Jiaotong University, Beijing, China. His current research interests include pricing strategy, mechanism design, and optimal supervision in drug supply chains.

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Zhang, M., Zhang, J., Cheng, T. et al. The Effect of Unannounced Inspection on Prevention of Drug Fraud. J. Syst. Sci. Syst. Eng. 28, 63–90 (2019). https://doi.org/10.1007/s11518-018-5382-8

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