The Role of Regulators in Mitigating Uncertainty within the Valley of Death

Abstract The essential cause of the ‘Valley of Death’ (VoD) is the reluctance of the private sector to invest in technologies which are perceived as immature. However, uncertainty about whether a new product or technology complies with regulatory frameworks may also have an important effect on private sector investments. We use the cases of the Critical Path Initiative, in the pharmaceutical industry, and the Advanced General Aviation Transportation Experiments, in the general aviation industry, to analyze the role of regulatory agencies in decreasing three different types of regulatory uncertainty along the VoD. We find that regulatory agencies play an important role as a social glue which helps coordinate industry-wide efforts. Based on the comparison between the two cases, we create theory to explain the effect of regulatory uncertainty on the shape of the VoD. Our theoretical framework may help agencies detect the major sources of regulatory uncertainty, and adapt their policies accordingly to facilitate the traverse of emerging technologies across the VoD.