This paper examines the extent to which product liability risk contributes to the high costs of pharmaceuticals in the United States relative to prices in the United Kingdom. Research on pharmaceutical prices rarely accounts for the impact of liability risk, and none that we are aware of compares the United States and United Kingdom. Drawing on a dataset of 77 brand name drugs sold in both the US and the UK, we analyze relative manufacturers’ factory prices in each nation. We utilize several proxies for liability risk including drug litigation history, the percentage of plaintiff wins, and controlled substance classification. Importantly, under US law there are no caps on the amount that can be awarded to a plaintiff claiming economic losses in the US. However, payouts in the UK are limited. Accounting for market differences and regulatory environments, we find liability risk can account for a portion of the price differential that exists between the US and UK, warranting further investigation.
Lybecker and Watkins, ‘Liability risk in the pharmaceutical industry: Tort law in the US and UK’. Social Science Journal, http://dx.doi.org/10.1016/j.soscij.2014.03.010, available online 22 April 2014.