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Products Liability and Prescription Drug Prices in Canada and the United States

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  • Manning, Richard L

Abstract

This article provides the first estimate of the degree to which product liability costs in this country contribute to the observed differences in pharmaceutical prices between the United States and Canada. Measures of liability risk show up as large and strongly significant explanatory variables in regressions of U.S. and Canadian price differences. Ire the sample used here, accounting for liability effects reduces the mean of the predicted price difference distribution by about one-half and the median by about one-third. These reductions come about by virtually eliminating the upper tail of the distribution. Though liability effects cannot account for all the observed price differences in this sample, they clearly must play a role. Efforts to explain international price differences in drug products which do not take account of the effects of differing legal systems are missing an important effect and suffer from a substantial omitted variable bias. Copyright 1997 by the University of Chicago.

Suggested Citation

  • Manning, Richard L, 1997. "Products Liability and Prescription Drug Prices in Canada and the United States," Journal of Law and Economics, University of Chicago Press, vol. 40(1), pages 203-243, April.
    • Handle: RePEc:ucp:jlawec:v:40:y:1997:i:1:p:203-43
    DOI: 10.1086/467371
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    References listed on IDEAS

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    1. Reekie, W Duncan, 1984. "Drug Prices in the UK, USA, Europe and Australia," Australian Economic Papers, Wiley Blackwell, vol. 23(42), pages 71-78, June.
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    Cited by:

    1. Tomas J. Philipson & Eric Sun, 2008. "Is the Food And Drug Administration Safe And Effective?," Journal of Economic Perspectives, American Economic Association, vol. 22(1), pages 85-102, Winter.
    2. Tomas J. Philipson & Eric Sun & Dana Goldman, 2010. "The Effects of Product Liability Exemption in the Presence of the FDA," NBER Chapters, in: Regulation vs. Litigation: Perspectives from Economics and Law, pages 137-163, National Bureau of Economic Research, Inc.
    3. Tomas J. Philipson & George Zanjani, 2013. "Economic Analysis of Risk and Uncertainty induced by Health Shocks: A Review and Extension," NBER Working Papers 19005, National Bureau of Economic Research, Inc.
    4. DeLong, Gayle, 2018. "Can ‘delitigation’ transform an industry?," The Quarterly Review of Economics and Finance, Elsevier, vol. 67(C), pages 245-254.
    5. Rubin Paul H. & Shepherd Joanna M., 2008. "The Demographics of Tort Reform," Review of Law & Economics, De Gruyter, vol. 4(2), pages 591-620, December.
    6. Ernst R. Berndt, 2007. "A primer on the economics of re-importation of prescription drugs," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 28(4-5), pages 415-435.
    7. Berndt, Ernst R & Dubois, Pierre, 2012. "Impacts of Patent Expiry and Regulatory Policies on Daily Cost of Pharmaceutical Treatments: OECD Countries, 2004-2010," CEPR Discussion Papers 9140, C.E.P.R. Discussion Papers.
    8. Paul H. Rubin & Joanna M. Shepherd, 2007. "Tort Reform and Accidental Deaths," Journal of Law and Economics, University of Chicago Press, vol. 50(2), pages 221-238.
    9. Francisco J. Pallares & Adam G. Walke & Thomas M., 2014. "Are Online Pharmacy Prices Really Lower in Mexico?," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 4(4), pages 416-431, April.
    10. Daniel P. Kessler & Daniel L. Rubinfeld, 2004. "Empirical Study of the Civil Justice System," NBER Working Papers 10825, National Bureau of Economic Research, Inc.
    11. Hudson, John, 2000. "Generic take-up in the pharmaceutical market following patent expiry: A multi-country study," International Review of Law and Economics, Elsevier, vol. 20(2), pages 205-221, June.
    12. Thomas Fullerton & Osvaldo Miranda, 2009. "Borderplex brand name medicine price differences," Applied Economics, Taylor & Francis Journals, vol. 43(8), pages 929-939.

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