Idea of the Day: Use Inducement Prizes to Stimulate Innovation

June 19, 2008

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Inducement prizes are an old but currently underutilized tool for stimulating technological innovation. Inducement prizes encourage efforts by contestants to accomplish a particular goal, as opposed to recognition prizes such as the Nobel Prize which reward researchers for past achievements.

Historically, prizes have been used by the British Parliament to discover an accurate way to measure a ship’s longitude, by Napoleon to feed the French army with preserved food, and by a New York hotel owner to motivate Charles Lindbergh’s trans-Atlantic flight. In recent years, prizes have enjoyed a renaissance, in part due to the success of the Ansari X PRIZE.

A related policy tool is an Advance Market Commitment. Under an AMC, governments commit to purchase a product that does not yet exist, thereby stimulating private-sector investment in R&D and manufacturing. Experts have proposed creating AMCs for diseases of the poor such as tuberculosis and malaria.

Currently, only a few federal agencies (DARPA and NASA) are using prizes. Congress should pass legislation that gives federal agencies the authority to support prizes and Advance Market Commitments. This legislation should encourage agencies to partner with non-profit groups and the private sector, which would take the lead on public relations, defining the rules, recruiting additional and philanthropic sponsors, and selecting the judges.

The legislation should make clear that the government can make commitments to prizes and AMCs that are legally binding, and not subject to the whims of the annual appropriations process. Finally, the legislation should allow agencies to experiment with a broad range of topics, prize amounts, and rules.

For more on CAP's policies for increasing innovation in science and technology, please see:

• A National Innovation Agenda: Progressive Policies for Economic Growth and Opportunity Through Science and Technology by Tom Kalil and John Irons