That generates deadweight loss that ends the efficiency benefits of prizes

When the government calculates prize payouts based on sales volume, it faces an incentive to save money by imposing a sales tax on innovations, with the effect of reintroducing deadweight loss. Most proposals for prize systems rely on observing sales volume to calculate prizes.253 Given the close connection between the utilization of an innovation and its social value, it is hard to imagine a comprehensive prize system that does anything else.254 Unfortunately, basing rewards on sales volume gives the government a perverse incentive to suppress utilization as a way to reduce its own liabilities.255 The government could use a variety of means to limit the public’s access at marginal cost,256 but the most direct is to impose user fees on innovations to inflate their price, thereby suppressing sales volume while also raising money to help finance the prize system.257 From the public’s perspective, these user fees are harmful to the extent that they undermine some (or all) of the efficiency gains from the prize system. Nevertheless, so long as the government is operating under budget constraints and calculates prizes based on sales volume, it will have a strong incentive to suppress the utilization of innovations though a sales tax or similar user fee.