Prizes to Change the World

Andy Kessler argues that the greater use of technology-inducement prizes could reap dramatic social benefits — far greater benefits that the sorts of prizes given out to recognize past achievement.  On the recently awarded Breakthrough Prizes in Life Sciences.

This type of prize is commendable, its generosity admirable. But it prompts a question: Will such a prize actually spur innovation or do anything to help society? Or will it be like those given to MacArthur Fellows, who receive $500,000 over five years? Last year the MacArthur winners included a marine ecologist and a stringed-instrument bow maker. Good for the winners, good for those giving out the money. For the rest of us? Not so much.

But what do you expect from a prize without a contest? Human psyche gets rewarded via vanity (read Nobel, Oscars). Yet economies and entrepreneurs need the incentives of a good old-fashioned contest. . . .

. I’m not one to tell someone else how to give away money, but . . . let’s have a real contest with some serious prize money. Sergey Brin is worth $23 billion and Mark Zuckerberg $13 billion. If they really want to have an impact on society—beyond the societal wealth already created by Google and Facebook—offer a billion-dollar BrinZuck prize to prevent or stop Alzheimer’s, or to regenerate spinal cords and organs, or to cure obesity. Instead of small-ball academic researchers vying for grants from the National Institutes of Health, you’d get entrepreneurs coming out of the woodwork trying innovative approaches to win a $1 billion jackpot. Or maybe the challenge could be to create personal jet packs. Or neuron downloads. Whatever—but something BHA. [Big, hairy and audacious.]

This is the sort of approach the federal government (and private philanthropists) should take toward alternative energy.  Meaningful greenhouse gas emission reductions will not be achieved until it is relatively cheap to reduce such emissions while meeting human needs — including the widespread need for economic development and access to energy in developing nations.   This requires dramatic technological innovation — and there is no better way to encourage substantial economic rewards.  As Kessler notes, such rewards prompt substantial efforts at market innovation, such as in the tech sector.  Where the benefits of innovation are more difficult for the innovator to capture — as is often the case with environmental benefits, such as the reduction of greenhouse gas emissions — markets alone will not provide adequate incentive.  This creates a void prizes can fill.

In my paper on the use of technology inducement prizes to encourage the development of climate-friendly technologies, I suggested that the federal government devote a substantial portion of energy R&D budgets to the endowment of prizes, as this is far more likely to produce the  desired technological breakthroughs than regulatory mandates or traditional ex ante R&D grants.

Creating contests for prizes to encourage and direct innovative efforts is important.  So too are the selection of contest aims and criteria.   To maximize the value of such prizes, it’s important to identify the sorts of technological or other achievements that will redound to public benefit, and identify sound criteria for identifying the winner.  This can be difficult, but no more difficult than trying to identify, in advance, those labs or research projects that are most likely to produce desired innovations.  Prizes have been shown to drive innovation.  Where innovation is necessary, policymakers (and others) should turn to prizes.