improve their chances of winning. Rather, the inducement effect of these “genius” awards is expected to occur after the prize is awarded. Specifically, it is assumed that the proceeds of the prize will “induce” the prizewinner to spend less time on the bureaucratic processes of grant applications and reporting, and spend more time on scientific research or innovation in his or her chosen field.
Inducement Prizes and Existing Public Policy Instruments
In an effort to better understand the role inducement prizes might play as an instrument of federal science and technology policy, workshop participants considered the strengths and weaknesses of two primary mechanisms by which the federal government supports research and innovation directly—traditional research grants and procurement contracts —and how prize contests might complement them.
Research grants support most of the long-term, fundamental research in university and government research institutions, as well as a significant share of applied research and a small amount of technology development. These grants are generally awarded through a process of expert peer review. By comparison, procurement contracts support most of the applied research, technology development, and product or service production performed for the federal government by nongovernmental entities. These contracts are arranged between agencies and private firms to support agency missions.
There was general agreement among workshop participants that both the peer-reviewed system of research grants and the federal procurement system have, on balance, served the nation's interests well, and are likely to remain pillars of direct federal support to research and innovation in the future. However, by focusing on several perceived shortcomings of these two principal policy mechanisms, several workshop participants sought to delineate the potential advantages of prize contests and the complementary role they might assume in the federal technology policy portfolio. In particular, participants focused their criticism on the conservative, risk-averse posture of the research grant and procurement systems and at the bureaucratic barriers that have grown up around them.
Discussing the grant system, some workshop participants argued that the peer review process tends to favor proposals that seem “safe,” as opposed to “riskier” proposals that may produce surprising and potentially more innovative results. For example, National Science Foundation (NSF) officials at the workshop said that both experienced grant applicants and reviewers alike are inclined to favor existing lines of inquiry and “nearby” incremental goals that have the best chances of success. These same officials observed, however, that this cautious tendency extends beyond peer review. For example, with the Small Grants for Exploratory Research Program, the NSF has urged program officers to use 5 percent of their budgets for high-potential, high-risk, non-peer-reviewed projects. However, in 1998 less than 1 percent of operating budgets on average was committed to this program.12
Likewise, workshop participants criticized the federal procurement system for its intolerance of risk and its bureaucratic and costly demands on private-sector contractors. While
acknowledging that some agencies have improved incentives and reduced the bureaucratic burden for government contractors in recent years, workshop participants noted that the Defense Advanced Research Projects Agency (DARPA) and other agencies continue to experience difficulties in their efforts to identify and contract with innovative companies in fast-paced sectors, or in new fields of technology in which the agency has not previously been active. In response to this challenge, DARPA, which has been a trailblazer in the use of alternative procurement mechanisms, has sought and recently received legislative authority from Congress to offer inducement prizes as a mechanism for attracting and engaging cutting-edge technology companies in support of the agency's mission.13
There was general agreement among workshop participants that inducement prize contests were not immune to the challenges that face the grant and procurement systems. Indeed, if prize contests are not designed or administered with care, they may discourage prudent risk taking or unorthodox approaches to particular scientific or technological challenges, or scare away potential contestants with excessive bureaucracy. On the other hand, many participants argued that prize contests— if carefully targeted, designed, and administered—might address some of these challenges in a manner that complements agency missions. Indeed, the workshop discussion and existing research on research tournaments and “prize-like contests” highlight several potential advantages of prize contests relative to traditional research grants or procurement contracts in the pursuit of particular types of objectives.14
One perceived strength of inducement prize contests is their potential for reducing the cost and bureaucratic/regulatory obstacles that might prevent federal agencies and innovative researchers and firms from finding each other and working together effectively. In principle, prize contests could lower the cost to federal agencies of identifying capable competitors, selecting among them, and subsequently monitoring and verifying their performance vis-à-vis a predetermined objective. Indeed, if the rewards associated with a given prize contest are adequately calibrated to the level of effort (cost and risk taking) required to compete successfully for it, capable contestants should self-identify. While the costs associated with identifying the highest performing competitors from a large pool of prize contestants can be significant, recent research on the use of auctions and other mechanisms to address this challenge suggests that these selection costs can be significantly reduced for the prize administrator.15 Moreover, whether the prize is awarded on the basis of objective criteria (e.g., the first to achieve X) or the relative performance of contestants, the tasks of identifying a winner and monitoring its performance are made easier because the prize—unlike conventional grants and contracts—is awarded after the prize objective has been achieved. By contrast, the cost and difficulty to federal agencies of assessing the relative capability of competitors and monitoring the performance of grant or contract winners can be quite high in the case of conventional contracts or grants.
Likewise, by relieving would-be prize contestants of the burden of complying with the multitude of government accounting rules, reporting requirements, and other information demands generally associated with federal grants and contracts, inducement prize contests may be more effective at attracting a broader range of participants and approaches to meet particular challenges. This is more likely to be the case if the criteria for winner selection are perceived to be transparent, objective, and fair.
A second potential advantage of prize contests is that, if properly designed, they may help federal agencies to be more tolerant of prudent risk taking than traditional research support mechanisms.16 Inducement prize contests can effectively shift more of the risk involved in pursuing a particular technical objective from the administering agency to the contestants, who are likely to be in a better position to evaluate the risk associated with different approaches to the contest's objective. With research grants or procurement contracts, federal agencies assume some of the risk of failure of their grantees or contractors. By contrast, with a prize contest, the agency only pays out its reward or prize if the criteria for winning are met —in this case, achieving a specified objective. It should be noted, however, that along with the higher administration costs and risk associated with conventional grants and contracts, federal agencies are likely to receive significantly greater substantive information flows from researchers supported by these instruments than they would receive from prize contestants per se.
A third advantage of prize contests may be their ability to leverage the financial resources of a contest sponsor by inducing contestants to invest their own resources in research and innovation aimed at the prize objective as they compete for the prize's cash and non-cash rewards. In addition to cash awards, prize contests may offer publicity or free advertising generated by the contest itself; the imprimatur of a respected prize sponsor; recognition within a particular community of peers; the potential for follow-on grants, procurement contracts, or venture-capital support; or increased commercial demand for a winning process or technology. That is, non-cash incentives may attract some private-sector participants that value them as much as or more than the monetary value of a prize. In some cases, these collateral benefits will accrue not only to winners but to other contest participants as well. Ultimately, the level of contestant investments induced (or leveraged) by a prize is a function of both the size or value of the prize offered and the probability of winning.
A fourth comparative strength of inducement prize contests (and recognition prize contests for that matter) that received particular emphasis during workshop discussions is the potential of prizes to inspire and educate the public. While seeking to induce the efforts of contestants, inducement prize contests have often incited action by “third parties” —students, policymakers, opinion leaders, et al.—consistent with or complementary to the primary objective(s) of a prize contest. For example, recent space prize contests including the X Prize, which seeks to advance development of reusable, manned, suborbital space craft, and the Cheap Access to Space (CATS) Prize, which seeks to advance the development of inexpensive launch technologies, are focused on achieving specific technical objectives and demonstrating the feasibility and commercial potential of particular technologies. 17 Yet they are also serving to inspire the American public and build popular support for space-related research in general.