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Concerning Federally Sponsored Inducement Prizes in Engineering and Science: Report of the Steering Committee for the
Recent space prizes such as the X Prize and the CATS Prize also fit this model. Compared with goal-oriented prize contests, best-entry prize contests are likely to require a more complex and subjective judging process to choose the winner.
Case studies of specific prizes presented at the workshop, as well as a growing body of research on contests, grants, procurement contracts, patent races, and the optimal design of federal R&D programs,26 suggest that the following guidelines may prove helpful in structuring specific best-entry or goal-oriented inducement prize contests:
Contest rules should be seen as transparent, simple, fair, and unbiased. Goal selection must be transparent and credible, the criteria for winning must be clear, and the process for determining winners must be perceived to be fair and unbiased. Clearly this represents much more of a challenge to prize contests targeted at large, complex, societal challenges, than to those that are focused on more readily quantifiable or definable technical objectives.
Prizes should be commensurate with the effort required and goals sought. For example, a prize contest for the design of the best educational toy might offer a modest prize, given the relatively low investment needed to enter. On the other hand, rewards (financial and other) for prize contests with more ambitious objectives—such as the development and marketing of super-efficient refrigerators —must be significantly larger in order to attract qualified contestants.
At the extremes, if the value of a prize is too small relative to the cost of competing for it, it will attract no contestants. On the other hand, if a prize is much larger than the anticipated cost of competing for it, the contest could draw too many contestants. This would lower the probability of winning the prize for any given entrant, and reduce the expected payoff. This would also raise the cost of administering the prize, i.e., the cost of reviewing and filtering large numbers of prize entries. While there may be ways to reduce the costs associated with singling out the highest performing contestants (e.g., via contestant auctions, entry fees, and other mechanisms),27 excessively large prizes may affect contestant behavior in ways that reduce the effectiveness of these mechanisms. Furthermore, it might lead to excessive duplication of effort. Indeed, sponsoring a prize that is much larger than the expected cost of competing for it makes sense only if the sponsor believes that there are a large number of very different technical approaches that might work, and so wants to get a large number of contestants participating in the prize competition.
The closer the objectives of an inducement prize contest lie to perceived market opportunities and the existing capabilities of would-be contestants, the lower the costs of competing for it will be, and the smaller the prize needs to be to attract competitors. Conversely, the further a contest's objectives lie from perceived market opportunities (high-risk challenges far beyond the current technological horizon, or otherwise neglected technologies or societal challenges), the higher the intended inducement effect will be, the higher the cost of competing for it will be, and the larger the prize must be to attract contestants.