Drug prices have become a hot-button issue in the United States, with politicians across the spectrum agreeing that American consumers pay too much for prescription medications. But bringing down drug prices raises fundamental economic challenges that affect innovation, access, and healthcare costs worldwide.

In a paper in the Journal of Economic Perspectives, author Margaret K. Kyle examines how different countries approach pharmaceutical pricing regulation and the lessons to be learned from international experience. Her work reveals that while the United States does pay significantly higher prices for drugs, the story is more nuanced than a simple comparison suggests.

Kyle recently spoke with Tyler Smith about why economists generally support market solutions but make an exception for pharmaceuticals, how "pay-for-performance" contracts and subscription pricing models could bring down costs, and why simple solutions like copying other countries' prices might backfire.