Setting prizes too high kills innovation by creating expectations of lower prizes for future innovators

In a prize system, an excessive incentive can stifle future innovation because subsequent innovators will likely be seeking compensation from the same system. It is true that the stifling effects of licensing are avoided in a prize system by placing the innovation immediately into the public domain.158 However, since government resources are finite, and the government must divide profits among sequential innovators, an excessive incentive for an early innovation will subtract too much profit from the pool for later innovators. To the extent that subsequent innovators anticipate smaller prizes for this reason, an excessive prize could have the same effect on cumulative innovation as an excessive patent (assuming that subsequent innovators will be depending in part on the prize system for their profits).