Should prizes make a come back as against grants?

A very interesting article by Tim Harford about how prizes were a motivation for a big chunk of research which got productised earlier, and how it could be making a comeback. The advantage is quicker solutions, involvement of a more diverse community with more diverse ideas, cutting bureaucracy, fame and fortune for the inventors, and of course, problems getting solved. He cites how a competition was used to build an accurate clock used to predict the longitude of ships, and how today, from the Gates Foundation (for pneumococcal disesases) to Netflix (for machine learning algorithms) is using a cash prize as a motivation to involve people to solve important problems. It could also be used by governments to replace patents for solving large problems. He says:

Champions of prizes see them as a component of a wider system to promote innovation, rather than as an outright replacement either for grants or patents. Instead, the hope is that prizes will help to compensate for the specific weaknesses of those alternatives.

The downside of a patent is fundamental to its design: in order to reward an innovator, the patent confers a monopoly. Economists view this as, at best, a necessary evil since monopolies distort prices. In the hope of raising profits from some customers, they will price others out of a market. The most obvious victims are consumers in poor countries.

In an ideal world, prizes could replace patents. Instead of offering a patent for an innovation, the government could offer a prize. The inventor would pocket the prize but would not be allowed to exploit any monopoly power, so the innovation would be freely available to use in products for poor consumers – cheap drugs for Africa, for instance – and, importantly, in further innovations. But to explain that idea is to see its limitations. How could the government know enough about the costs and benefits – and even the very possibility – of an innovation to put a price tag on it and write the terms of reference for a prize competition? For this reason it is hard to see prizes replacing patents in most cases. But it is not impossible.

The modern heir to 18th-century prizes for canning, water turbines and finding longitude at sea is the advanced market commitment for vaccines for the poor: the goal is clear, the costs and benefits can be guessed at, and the quasi-prize nudges the patent system to one side with a prize contract that respects the patent but, in exchange for a large subsidy, radically constricts the holder’s right to exploit it.

Prizes may be an effective way to build technologies that solve a specific problem, but I doubt if they can help in unknown sojourns into the world of science. Most of our applied technologies are build upon these basic scientific fundamentals and I don’t know if a gold-rush will lead to the newest laws of physics, or fundamental rules in mathematical logic. Issues of ownership of Intellectual property are also a little ambiguous, and have to be specified clearly up front. In many cases, gauging the ramifications of a new mathematical theory, or basic physical laws might be extremely difficult (which is the reason Nobel prizes are awarded after the work has been established over a long term).

All said and done, I am sure prizes (not just the cash, the fame and respect as well) make for great motivation and we might see a lot of it.

About kpowerinfinity
I *♥* technology, business, conversations, experiences, books, music, theater, coffee and people. I am an entrepreneur in the city of Bangalore - my company, Capillary, provides customer engagement programs and marketing services to retailers around the world.

2 Responses to Should prizes make a come back as against grants?

  1. debnath says:

    Would have to disagree on the whole. The fundamental problem is that a grant gives money to solve the problem, whereas a prize gives money after the solution has been found. Hence, I do not see how this could work in research areas in which heavy funding is needed to achieve the solution (like computational biology or supercomputing). Most of the achievements listed under prizes seemed to be relatively lower cost inventions.
    Don’t know if this would work, but to avoid monopolies, grants can be issued with the clause that restrict monopolies upon the completion of research (especially in NSF/ govt related grants).
    Also, regarding cheaper drugs in Africa, I honestly feel there should be some antitrust laws against it, I heard a Bill Clinton lecture (I think this was where he got the TED prize, but not sure) where he said the same AIDS drugs cost less in Norway than in Africa….possibly demand supply, but then I think economies of scale would set in. Can not comment further without facts :D
    But interesting article nonetheless :)

  2. kpowerinfinity says:

    Debnath,

    I agree with you. The balance has to be maintained properly… prizes will not work for everything. They are very useful for end-user technology, where you need to innovate with existing technology, rather than develop fundamental laws.

    I am of the opinion that there can be no silver bullet for everything, and we need to experiment with multiple means. No harm having both grants and prizes co-exist.

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