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

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  • Manning, Richard L
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    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.

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    Bibliographic Info

    Article provided by University of Chicago Press in its journal Journal of Law & Economics.

    Volume (Year): 40 (1997)
    Issue (Month): 1 (April)
    Pages: 203-43

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    Handle: RePEc:ucp:jlawec:v:40:y:1997:i:1:p:203-43

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    Web page: http://www.journals.uchicago.edu/JLE/

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    Cited by:
    1. 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.
    2. Daniel P. Kessler & Daniel L. Rubinfeld, 2004. "Empirical Study of the Civil Justice System," NBER Working Papers 10825, National Bureau of Economic Research, Inc.
    3. 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.
    4. 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.

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