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Policy Options for the Drug Pricing Conundrum

Author

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  • Kate Ho
  • Ariel Pakes

Abstract

Current proposals aimed at reducing U.S. pharmaceutical prices would have immediate benefits (particularly for low-income and elderly populations), but are likely to dramatically reduce firms’ investment in highly welfare-improving R&D. The U.S. subsidizes the worldwide pharmaceutical market: U.S. drug prices are more than 250% of those in other OECD countries. If each drug had a single international price across the highest-income OECD countries and total pharmaceutical firm profits were held fixed: U.S. prices would fall by half; every other country’s prices would increase (by 28 to over 300%); and R&D incentives would be maintained. We propose a potential lever for the U.S. government to influence worldwide drug pricing: access to the Medicare market.

Suggested Citation

  • Kate Ho & Ariel Pakes, 2024. "Policy Options for the Drug Pricing Conundrum," NBER Working Papers 32606, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:32606
    Note: EH IO
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    More about this item

    JEL classification:

    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General

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