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New drug therapies may deliver many social and economic benefits, but current levels of innovation across diseases may not be socially optimal. This dissertation investigates two mechanisms by which governments may influence pharmaceutical research and development (R&D) priorities: (1) public funding for life sciences research; and (2) prescription drug insurance, as in Medicare Part D. The author finds federal funding for life sciences research spurs non-federal investment in academic R&D as well as downstream drug development. Likewise, introduction of Medicare Part D increased both the number of drugs entering clinical trials and firm R&D expenditures for higher-Medicare-share drugs.

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This document was submitted as a dissertation in June 2009 in partial fulfillment of the requirements of the doctoral degree in public policy analysis at the Pardee RAND Graduate School. The faculty committee that supervised and approved the dissertation consisted of Neeraj Sood (Chair), Greg Ridgeway, and Dana Goldman.

This report is part of the RAND Corporation Dissertation series. Pardee RAND dissertations are produced by graduate fellows of the Pardee RAND Graduate School, the world's leading producer of Ph.D.'s in policy analysis. The dissertations are supervised, reviewed, and approved by a Pardee RAND faculty committee overseeing each dissertation.

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