Search the archive.

More than 60 individual criteria were factored into the rankings, including the number of military troops, as well as financial and logistics capabilities.

"Our unique, in-house formula allows for smaller, more technologically-advanced, nations to compete with larger, lesser-developed powers and special modifiers, in the form of bonuses and penalties, are applied to further refine the list which is compiled annually," GFP cited on its website. "Trends do not necessarily indicate a declining power as changes to the GFP formula can account for this."

Undervaluing a new medicine in a prize system matters for future innovation. In a situation wherein innovators know their inventions are unlikely to be properly rewarded, they are less likely to invest in R&D and compete for the prize. With the cost of drug development approaching $3 billion, innovators—and the venture capitalists on which many biopharmaceutical start-ups rely—need to be certain the potential rewards are worth the risk of this capital.[55] If there is a real prospect of under-reward, innovators could direct their capital away from medicines and toward sectors in which the expected rate of return would be higher.

Some prize advocates have suggested the problems of under-valuation and expropriation could be avoided by allocating a fixed amount to prize agencies and legally requiring them to disburse all their monies according to pre-set rules and criteria.56 But this would not prevent governments from underfunding the prize committee in the first place. Another challenge is that even for a prize winner, there would still be no guarantee the prize amount would sufficiently cover costs of development. Moreover, the prize would have to be large enough to account for the expected value of winning, which would be low given not only the technical challenges of successfully developing a drug that could be approved by governments, but that is ahead of all other competitors globally that would also hope to win the prize. The problem of under-rewarding invention is likely to be a fatal flaw in a prize system that could seriously disrupt innovation. In turn, that would harm society, as fewer new medicines would be developed.

Such a top-down body would be open to politicization and rent seeking, and by replacing patents with prizes and other delinkage mechanisms, it would significantly weaken incentives that have been responsible for the vast panoply of medicines and treatments on which physicians and patients can draw today.

The assumption made by advocates of government-run prizes that they would have minor deadweight costs compared with the (temporary) “monopolies” created by the IP system has been called into question by many. For instance, as Daniel Spulber, Professor of International Business at the Kellogg School of Management, Northwestern University, and an award-winning expert on innovation policy, notes, “Prize advocates tend to assume that the government would expend no resources in administering the prize system, including managing contests, selecting winners, and allocating inventions.” However, as he continues, “The government could not replace the entire patent system with contests and awards in every area of science and technology covered by the patent system without incurring astronomical administrative costs.”51

Prizes have a place, but as the following sections argue, there are many weaknesses with a delinkage approach that would make prizes the primary mechanism for incentivizing global life-sciences innovation.

The first and most significant is that it is extremely unlikely governments would truly adequately fund such prizes as the primary mechanism for underpinning global life-sciences innovation. If anything, a pure prize system would likely stimulate more free-riding by nations, and thus actually exacerbate underinvestment.

Moreover, “pure” prize systems (that do not entail ex post patenting of winning entries) fail in one critical respect: To the degree that they are based on performance alone, winning the prize provides no guarantee that the invention will be further developed. In fact, given the increased costs of commercialization and marketing, the winner has no such incentive. A related example here is the discovery of penicillin by Alexander Fleming. Although famous for his statement “Can one patent the sun?,” Fleming’s unpatented discovery, perhaps the most significant in medical history, went undeveloped and unimproved for years. It was not until 1939- 40 that a group of Cambridge scientists, using university laboratory equipment (at university cost) refined penicillin to the degree that it was useful. To guarantee that a winning innovation is commercialized, the prize sponsor must either (like SERP) specify a marketing goal as a prize criterion, allow the invention to be patented, or otherwise support the winner. The proposed scheme for new vaccines (Kremer, 2000), for example, involves recipient government co-payment arrangements for the prize winners as a form of guarantee that the winning vaccines would in fact be used.

Despite the recent boom in prizes we described in the previous section, we found a surprisingly little amount of empirical evidence on the effect of prizes on any dimension of innovation.

According to Jin, Ma, and Uzzi (2021, p. 2), prize research so far has mainly studied how awards change prizewinners’ careers, and it is unclear whether the link between prizes and growth for a single prizewinner’s work extends to changes in the growth of an entire topic. They claimed that current theoretical arguments and empirical work are at a nascent stage.

Although the patent-plus-prize scheme is relatively simple administratively, and consistent with profit-making incentives, it is likely to encounter political opposition. If the government gives prizes equal to profit (or half of profit) from patents to large firms, eventually politically savvy actors would oppose the scheme. It would be attacked as “corporate welfare,” and the attacks would probably seem appealing to the median voter.12 To maintain the prize system in the face of such opposition, the government would have to continually remind voters that society gains more from the prize system than it loses. Political attacks on the prize system, by contrast, need only be successful once to put an end to the system. Eventually, the prize scheme would generate sufficient public opposition that it would be terminated.

What makes the patent-plus-prize scheme especially vulnerable to political attack is that it is an open transfer to patentees. If the transfer were in some sense disguised, it might be survivable. Many laws lead to disguised transfers from poor to rich. In Massachusetts, the Community Preservation Act subsidizes land conservation and public beautification projects in affluent suburbs while taxing residents in every community, affluent or not.13 The economically regressive transfer effected through the Massachusetts CPA, taxing residents of Dorchester to fund open space acquisition in Weston, goes largely unremarked because it is not open and obvious. But the patent prize would be an open and obvious transfer from the general public to the patentee, and, consequently, an easy path to political power through attacking the transfer as regressive.

Every year, tens of billions of dollars are spent by universities, research institutes and private companies to develop solutions for climate change. Yet when a government decides to fund research for a piece of technology or branch of science, it rarely makes news.

The most pressing political economy concern with the prize system is the risk of inadequate prize payouts and expropriation. When innovators earn their profits through a government- funded prize system, they are competing against other interest groups over scarce taxpayer dollars. Innovators are likely to be at a disadvantage in these types of political battles for three reasons. First, by nature, innovators often threaten established interests and therefore create opposition from more powerful interest groups.286 Second, because innovators capture an unusually small portion of the social surplus generated by their activities,287 they have proportionally fewer resources to devote to rent seeking in support of their R & D investments. Third, and most importantly, innovators are particularly vulnerable to expropriation under a prize system because the government deter- mines their prize payout after innovators have invested in R & D and disclosed their inventions to the government. Since innovators’ R & D investments are sunk at this stage, the government can take advantage of its position to grossly underpay in- novators,288 who may have little choice but to accept the insufficient reward.289 Legislators could then redirect funds that would otherwise incentivize innovation toward lower taxes or other government spending programs, many of which would of- fer more immediate political gains than payments to innovators meant to encourage R & D spending.290 Eventually, the public would suffer from the reduced output of socially valuable innovation. However, this malfeasance would be largely hidden from voters, since it is nearly impossible to observe the relative absence of new innovations.291 Consequently, the risk of expropriation in a prize system could be a significant deterrent to private- sector investment in R & D unless there are political checks to prevent underpayment.

Every year, tens of billions of dollars are spent by universities, research institutes and private companies to develop solutions for climate change. Yet when a government decides to fund research for a piece of technology or branch of science, it rarely makes news.

Today, prizes are just a small part of the diverse motivations of scientists, inventors and entrepreneurs to come up with new ideas and technologies. Figuring out more about how prizes fit within this ecosystem will unlock their full potential and make them more effective incentives for science and innovation.

This paper discusses the use of incentive prizes to drive creativity, innovations and breakthroughs. Incentive prizes offer a large reward upon completion of a specific objective task. Traditionally they are large cash purses awarded to individuals or teams who build and demonstrate a new system (typically technology based) or accomplish a first time feat.

It is my belief that such prospective prizes that reward innovators for achieving a specific measurable goal have profound economic and psychological levers for accelerating and enabling innovation in areas that might otherwise be stuck for a number of reasons.

The current system for supporting innovation in the area of medical technologies is costly, inefficient, and leads to underutilization of new inventions, as well as unequal access. It is possible to do a better job of managing the current system, but it is also possible to radically refashion the approach, to provide for more innovation and more access, at a smaller cost. Unlike other reforms in the health care sector that rely upon rationing of access to control costs, the use of prizes to reward innovation would expand access and increase investments in areas where innovation is most important. It is not easy to change existing systems of innovation, but neither is it easy not to change. It is difficult to imagine a more expensive system of innovation that produces so little in terms of new medicines and vaccines. A reform of the reward system for new medicines has enormous potential to enhance innovation and access, not only in the United States, but everywhere. Those who object to change should have the burden of justifying the costly system of monopolies that we struggle with today.

Last week, I wrote about the Vesuvius Challenge, a $1 million competition with the goal of using artificial intelligence and machine learning to read 2,000-year-old papyrus scrolls. I’m still thinking about the way a bunch of students pulled off the seemingly impossible—and not just because using modern technology to crack an ancient mystery is undeniably amazing. It’s also because the success of this contest should inspire a lot more contests.

Prize contests encourage talented people to work across disciplines and bring unusual perspectives beyond their areas of expertise. They are especially valuable in areas where progress is hard and unlikely to happen without a push, but not so hard that it’s unattainable. The most effective prize contests are built around a simple premise: This is what we want to do, and we don’t care how it gets done or who does it.

The US army is running a competition that will give startups that create winning new weapons technology a cash prize of up to $200,000. First spotted by Engadget on the government's Challenge.gov website, the program is called xTechSearch and is intended to connect the US army with "nontraditional defense partners," (beyond the mega defense contractors it usually works with).

"The Army wants the innovation community to explore the full ideation space and the art-of-the-possible," the competition description reads. The art of the possible! Wow!

The NDS contained a powerful signal for industry as well — DoD is seeking to institutionalize technological innovation, going so far as to say “We [DoD] will be a fast-follower where market forces are driving commercialization of militarily-relevant capabilities … and speed their delivery to the warfighter.” The NDS goes on to state that DoD must transform the foundation of the future by “incorporating emerging technologies in the commercial and military sectors that solve our key operational challenges.”

The 2022 NDS language follows work that has been going on for several years. In 2021, federal agencies obligated $3.8 billion to nearly 7,000 companies under Small Business Innovation Research (SIBR) programs, which test technologies for feasibility for US Government applications. Of that, DoD alone awarded $1.6 billion. While this is positive, accelerating technological dynamism is not simply about making federal dollars flow to startups — it’s about making sure those startups evolve into sustainable businesses and their technology transitions into DoD programs.

Since at least the 18th century, philanthropic organizations, industry, governments, and nongovernmental organizations throughout the world have offered many different kinds of prizes with a variety of objectives to reward accomplishments in science and technology. In the United States, Congress authorize most of today's federally-funded innovation inducement prizes 1 beginning with the 108 h Congress (2003). This analysis focuses on federally-funded "innovation inducement prizes," which are sponsored by federal organizations and designed to encourage scientists and engineers to pursue scientific and technical societal goals not yet reached.

The objectives of such prizes are generally to identify new or unorthodox ideas or approaches to particular challenges; demonstrate the feasibility or potential of particular technologies; promote development and diffusion of specific technologies; address intractable or neglected societal challenges; and educate the public about the excitement and usefulness of research and innovation. They differ from "recognition prizes" such as the National Medal of Science, National Medal of Technology, and the Nobel prizes, which reward past S&T accomplishments.

For military-required or desired capabilities with a potential commercial market or application, there are alternative pathways to fund and develop them, which leverage outside investments and introduce new ideas and approaches that reduce time, costs, and risks of failure. One such pathway is using prize competitions that announce a government-related problem, requirement, or desire for new and novel capabilities, products, or scientific advancements with a commitment to a funding award for successful achievements.1 These announcements are made to industry, academia, and others to entice them to raise or invest capital and ideas that may result in solutions and enable them to win the (cash) prize for achievement and other tangible benefits stemming from their success.

Unlike grants and contracts, a prize competition awards funding based on achieving successful outcomes versus the potential for success. Instead of utilizing assigned project funding to issue a grant or contract, a project or program manager, researcher, principal investigator, or similar can instead initiate a prize competition. The language in a prize competition conveys the criteria and specifications required for winning the challenge and being awarded the prize funding. The criteria and specifications should also accurately describe and define the problem and communicate the criteria for a successful solution. Establishing a prize competition motivates competing teams to develop innovative and novel solutions that address the issue or requirement specified in the challenge to win the (cash) prize.

The use of prizes to reward innovation has long been of interest to economists and others, as evidenced by a plethora of recent proposals to use prizes to stimulate research into areas as diverse as the environment, energy, climate control, mining, space travel, software, and airport security. 31 More recently, however, there has been a growing interest in using prizes to simulate R&D in the areas of medicinal technologies.3 2