Using Innovation Prizes to Achieve the Millennium Development Goals

The idea behind prizes is rather simple: incentives matter. Offering the right incentives can lead to innovations that can change the world. The amount of money available for prizes has more than tripled over the last decade to an estimated $1–$2 billion, and the sector continues to grow rapidly.

Famous prizes, such as the Longitude Prize, the Orteig Prize, and Napoleon’s food preservation prize (see text box on next page), provide powerful evidence of the enormous benefits that be achieved by people competing for prizes.

Although hugely popular a century ago, interest in prizes declined during the 1900s, replaced in large part with grant funding. Grants have been credited with establishing the research centers and institutes of excellence that have been behind much of the rapid rise in innovation over the last 100 years. However, after a century of grant-funding cycles that have become ever more deeply entrenched in the complex relationship between funders and recipients, the connection between grant funding and innovation leaves room for improvement

While grant funding regroups, the awarding of prizes is again proliferating, not only in terms of numbers but in ambition and aims. The rapid growth of information technology and social media are helping to fuel this proliferation. Most observers see 2004 as the start of this upward trend, as that is the year that Scaled Composites launched a reusable manned spacecraft twice within two weeks—a feat that won the company the $10 million Ansari X PRIZE. From 2004 to 2009, the number of prizes offering large incentives more than tripled across the globe.¹ From governments to NGOs, corporations to private philanthropists, the global “prize industry” is on the rise. In September 2009, President Barack Obama released his Strategy for American Innovation, which called for federal agencies to increase their ability to promote and harness innovation by using policy tools such as prizes and challenges. At a “prize summit” held recently in London, there was a sense that society is on the brink of something new, something big, and something that has the power to change the world for the better.

Historic Prizes

The Longitude Prize was offered by the British government in 1714 for a simple and practical method to precisely determine a ship’s longitude at sea. An unknown cabinetmaker, John Harrison, applied breakthroughs in materials science and mechanical engineering to calculate longitude, not by astronomy as expected but by accurately measuring the passage of time.

Nicolas Appert, the French inventor of airtight food preservation, won Napoleon Bonaparte’s prize for food preservation in 1809. His system led to the practice of canning.

The Orteig Prize was first offered in 1919 and finally won in 1927 by Charles Lindbergh, who became the first aviator to fly nonstop between New York and Paris.

In contrast to recognition prizes, which highlight past achievements, inducement prizes offer rewards for pre-specified scientific or technological achievements, such as the solution to a mathematical problem, a method of performing a particular function within given parameters, or the completion of a specific task. Importantly, these prizes tap into more than just financial motivation; they bring to bear strong intrinsic drivers, external resources, and increasingly networked groups of competitors to catalyze innovation around the question at hand.²

The question is, are prizes a more cost-effective way than other policy options to spur innovation? A growing body of work discusses the advantages and disadvantages of awarding prizes as compared to grants and patents, reaching the conclusion that some funds should be used to establish technology innovation prizes. However, there is little empirical evidence that prizes, grants, and patents actually spur innovation. There is even less evidence available to make quantitative comparisons of value for money or rates of return on investment. Moreover, the research that is available is inconclusive, and is further complicated by the issue of whether the purpose of awarding a prize is as a substitute for granting intellectual property rights, or a complement to them.

What has been clearly demonstrated is that prizes can produce materially different benefits...