Advance Market Commitments

January 6, 2011 8:42 AM

Inducement Prizes -- Best known for the Ansari X Prize, the DARPA Grand Challenge and the Clay Mathematics Millennium Problems, inducement prizes have a long history, but their recent successes have led to increased government interest, viz. challenge.gov, and resulted in the development of vaccines, thanks in large part to the work of Michael Kremer.^*

In 2001 Brad DeLong and Larry Summers wrote:

New institutions and new kinds of institutions -- perhaps even some that have been tried before, like the French government's purchase and placing in the public domain of the first photographic patents in the early nineteenth century (see Kremer (1998)) -- may well be necessary to achieve the fourfold objectives of (a) price equal to marginal cost, (b) entrepreneurial energy, (c) accelerating the cumulative process of research, and (d) providing appropriate financial incentives for research and development. The work of Harvard economist Michael Kremer (1998, 2000), both with respect to the possibility of public purchase of patents at auction and of shifting some public research and development funding from effort-oriented to result-oriented processes (that is, holding contests for private companies to develop vaccines instead of funding research directly), is especially intriguing in its attempts to develop institutions that have all the advantages of market competition, natural monopoly, and public provision.

cf. work being done by E. Glen Weyl (Hermann was his great uncle)

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^*coincidentally there's a prize named after another Kremer

posted by kliuless (8 comments total)

I've got several problems with inducement prizes. Firstly, it's basically spec work with the those teams that didn't win the prize losing out financially. Secondly, the inducement prizes seem to be targeted at geeks and scientists, groups which have a reputation for finding bonuses counterproductive to work. Finally, I'm not sure how inducing people to not share their work while they try for a prize is in any was useful.
posted by seanyboy at 8:49 AM on January 6, 2011

I meant to say ...
... in any way useful.

Bad typing ahoy.
posted by seanyboy at 8:50 AM on January 6, 2011

Firstly, it's basically spec work with the those teams that didn't win the prize losing out financially.

This is true, but I think spec work is less a problem when the output is valuable to more than just the organizer. Ie, a logo for WidgetCorp is only valuable to WidgetCorp, but a space rocket doesn't care who you are.
posted by pwnguin at 8:59 AM on January 6, 2011

Inducement prizes are supposed to be for things that are otherwise too blue sky to get anyone interested. a flying machine. A cheap, easy way to get into space. Centuries-old math problems. The one on the front page when I got there? "Recipe ideas for kids".

Yeah, this is the exploitative spec work kind of bonus.
posted by DU at 9:02 AM on January 6, 2011

Another take, via Naked Capitalism:

"Now, rather than having a right to the proceeds of one’s labor by virtue of a contract, ever more of us win or lose such that remuneration is treated like a prize. In academia, art, writing, architecture, entertainment, design, and, in the US, increasing numbers of different areas (education, technology), people not only feel fortunate to get work, to get hired, to get paid, but ever more tasks and projects are conducted as competitions, which means that those doing the work are not paid unless they win. They work but only for a chance at pay."

If you think about it, this criticism is consistent with the theories of the people who favor the prize system - it is regarded as a more "efficient" way to achieve innovation, as compared to, e.g., simply making lots of grants to many teams who may or may not find a useful innovation, or using exclusive rights (copyright, patent) to incentivize that innovation.

But the prize only goes to one team, or at most two or three. And there is not that much difference, in terms of intelligence, dedication, and talent, between the absolute top team and the third or fifth place team. But the rewards they secure are vastly different. The lower-ranking teams may be out of the innovation game, simply for lack of resources to continue.

I think ultimately we will find that an NFS-style grant system is preferable to the winner-take-all prize system, if certainly more expensive. While the winning team in any given competition may have come up with the best idea this time, who's to say it would be them next time instead of their near-equals who finished a few places back? Under the prize system, I question the ability of those also-rans to run again, and innovation could actually suffer as a result.
posted by rkent at 9:02 AM on January 6, 2011 [1 favorite]

I think ultimately we will find that an NFS-style grant system is preferable to the winner-take-all prize system, if certainly more expensive. While the winning team in any given competition may have come up with the best idea this time, who's to say it would be them next time...

Or that the second-place finishes didn't actually have a better solution that failed to win on a technicality. Or that they didn't come up with some other innovation that should also be funded. And so forth.
posted by DU at 9:08 AM on January 6, 2011

I think it's possible for inducement prizes to have many drawbacks but still be a net good. Obviously people can decide that the drawbacks are enough that they shouldn't bother, but I think some situations do lend themselves to this model.
posted by haveanicesummer at 9:50 AM on January 6, 2011

altho i can understand why some are defensive, no one is talking about replacing the grant system, just figuring out ways to supplement it: "Traditional public research grants or development contracts are essential, but tend to favour established names in academia and industry. There is little scope for a fresh perspective that is, occasionally, pivotal." like another thing gov'ts could do, cheaply, is making more data available to the public...

iirc, many of the same criticisms were leveled at the 'netflix prize' but where certain criteria are met, namely underfunded public goods provisioning that would address an outstanding unresolved issue of "demonstrable social value" (e.g. vaccine research and development), inducements by placing a bounty or price on the achievement and prestige one might garner help focus attention on problems that the public might otherwise dismiss, and if you're like perelman you can take it and/or leave it... it doesn't mean handing out mercenary cash bonuses in lieu of funding math dept's or vaccine research, but trying to open up the field and induce greater participation, esp when there was very little if any to begin with.
posted by kliuless at 11:23 AM on January 6, 2011