Tort Liability and the Market for Prescription Drugs

16 Pages Posted: 17 Jul 2010

See all articles by Eric Helland

Eric Helland

Claremont McKenna College - Robert Day School of Economics and Finance; RAND

Darius N. Lakdawalla

University of Southern California - Schaeffer Center for Health Policy and Economics; RAND Corporation; National Bureau of Economic Research (NBER)

Seth A. Seabury

University of Southern California - Keck School of Medicine; University of Southern California - Schaeffer Center for Health Policy and Economics

Anup Malani

University of Chicago - Law School; University of Chicago Pritzker School of Medicine; Resources for the Future; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: June 3, 2010

Abstract

Nearly all the empirical literature on tort liability in the healthcare sector focuses on physicians. This paper is among the first to focus on products liability litigation against drug companies. We model and estimate the welfare effects of failure-to-warn suits, the most common type of tort litigation involving drug companies. We find that tort liability – proxied by punitive damage caps – increases drug prices but that it also reduces side effects. Each life saved costs roughly $6.5 million in higher drug expenditures. Moreover, we find that tort liability increases the equilibrium quantity of drug sales. This means that liability must not only increase cost and reduce supply, but also increases safety and thus demand. Together the increase in quantity and reduction in side effects implies that tort liability improves social welfare.

Suggested Citation

Helland, Eric A. and Lakdawalla, Darius N. and Seabury, Seth A. and Malani, Anup, Tort Liability and the Market for Prescription Drugs (June 3, 2010). Available at SSRN: https://ssrn.com/abstract=1641239 or http://dx.doi.org/10.2139/ssrn.1641239

Eric A. Helland

Claremont McKenna College - Robert Day School of Economics and Finance ( email )

500 E. Ninth St.
Claremont, CA 91711-6420
United States
909-607-7275 (Phone)
909-621-8243 (Fax)

RAND ( email )

1776 Main Street
Santa Monica, CA
United States

Darius N. Lakdawalla

University of Southern California - Schaeffer Center for Health Policy and Economics ( email )

635 Downey Way
Los Angeles, CA 90089-3333
United States

RAND Corporation ( email )

P.O. Box 2138
1700 Main Street
Santa Monica, CA 90407-2138
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Seth A. Seabury

University of Southern California - Keck School of Medicine ( email )

2250 Alcazar Street
Los Angeles, CA 90089
United States

University of Southern California - Schaeffer Center for Health Policy and Economics ( email )

635 Downey Way
Los Angeles, CA 90089-3333
United States

Anup Malani (Contact Author)

University of Chicago - Law School ( email )

1111 E. 60th St.
Chicago, IL 60637
United States
773-702-9602 (Phone)
773-702-0730 (Fax)

HOME PAGE: http://www.law.uchicago.edu/faculty/malani/

University of Chicago Pritzker School of Medicine

Chicago, IL 60637
United States

Resources for the Future

1616 P Street, NW
Washington, DC 20036
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
62
Abstract Views
716
rank
168,825
PlumX Metrics