The Alignment of Innovation Policy and Social Welfare: Evidence from Pharmaceuticals

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This chapter provides an overview of different innovation policies and their performance in the pharmaceutical sector. I emphasize three points. First, both push and pull policies have generally promoted pharmaceutical research for diseases with large burdens. Second, imperfections in product and capital markets undermine the efficiency of pull policies. Similarly, the allocation of public funds is not always optimal, which limits the efficacy of push policies. Finally, the need to coordinate or adapt to policies choices in other countries is often overlooked in both economic studies of pharmaceutical R&D as well as policy choices.