Prizes don’t lead to development of the idea – patents are key to innovation follow-through
Lee Davis, Department of Industrial Economics and Strategy Copenhagen Business School, and Jerome Davis, Dalhousie University May 7, 2004, “HOW EFFECTIVE ARE PRIZES AS INCENTIVES TO INNOVATION? EVIDENCE FROM THREE 20TH CENTURY CONTESTS,” Paper to be presented at the DRUID Summer Conference 2004 on INDUSTRIAL DYNAMICS, INNOVATION AND DEVELOPMENT Elsinore, Denmark, June 14-16, 2004, accessed June 30, 2024, https://keionline.org/misc-docs/ds2004-1343.pdf
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.