Economists have shown that law suits are solely responsible for driving up the c

Question

Economists have shown that law suits are solely responsible for driving up the costs of
prescription drugs in the U.S. relative to the same drugs in Canada. The approximate
price differential is that in Canada the same prescription drugs are about 40% less
costly. In Canada, law suits against pharmaceutical companies and medical professionals
are prohibited by law. Therefore, the prescription drug industry in the U.S. should be
more regulated and subject to price controls such as those that are advocated by
politicians who also take contributions from the American Trial Lawyers Association. If
you were invited to debate one of these politicians, live, on PBS radio, what would you
say using positive economic arguements?

Explanation / Answer

If prescription drugs are more expensive in the US because of costly lawsuits that are unique to the US, then price controls that make US prescription drug prices equal to those in Canada will drive drug companies out of the US market and result in a shortage of prescription drugs. Alternatively, the US could achieve lower prescription drug prices by adopting Canada's policy of making lawsuits against drug companies illegal. If we think that these lawsuits are beneficial for public safety, that's fine too. But beneficial things cost money. In this case, that means higher prescription drug prices.

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