Incentives for pharmaceutical innovation: What’s working, what’s lacking

•This article provides an overview of the performance of innovation policies in the pharmaceutical sector.•It discusses the conditions under which various policies are mostly likely to result in socially valuable R&D.•Interactions between different domestic policies, as well as the importance of considering strategic interactions between governments, are also highlighted. This article provides an overview of the performance of innovation policies in the pharmaceutical sector. It discusses the conditions under which various policies are mostly likely to result in socially valuable R&D. Interactions between different domestic policies, as well as the importance of considering strategic interactions between governments, are also highlighted.