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 (RD 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.