Prizes as mechanism to fund innovation: We all lose
from Dean Baker
There has been increased interest in prize funds as a way to finance innovation in recent years, especially in the pharmaceutical industry. While a prize fund is preferable to the current patent system, which is also a type of prize system, it is far from an optimal way to finance research.
A prize system has two fundamental problems. The first is that there is little reason to believe that the recipients of the prizes will be the persons who actually most deserve to be rewarded. The second problem is that it creates a structure of incentives that undermines innovation.
On the first point, innovation is inherently a collective process. Each development builds on past work. It may often be the case that the person(s) who make the greatest breakthroughs are not the ones who develop the final product. In the case of prescription drugs, there may have been many crucial discoveries that allowed for an individual or team to successfully develop a useful drug.
The discoveries may have been the complex work, whereas putting together the final drug might have been relatively simple. An all-knowing prize committee may be able to ration the payments appropriately, but in the real world that seems very unlikely. Those who are better connected or better self-promoters are likely to get a disproportionate share of the rewards.
This situation is complicated further by the fact that we may not know the full value of a breakthrough until many years after the fact. Often drugs are developed that are originally touted as great breakthroughs, whereas later research shows them to be of little value or even harmful. Will a prize committee reclaim awards from the recipients or their heirs in these cases?
The other issue is that prize funds encourage secrecy in research. Teams of researchers would have strong incentives to keep preliminary findings to themselves and only release results when they were prepared to claim a prize. Research advances most rapidly when it is open. A system of direct public support, in which complete disclosure is a condition for receiving funding, is likely to lead to much more rapid medical progress.
Trust an economist to think the only way of motivating people is in a competition for money!
People in the recent Olympics did not seek gold because of its commercial (let’s not call it economic) value, but because it is the highest accolade. Nor was there any difficulty giving all the runners in a relay the same prize. The fact that greedy commerce has colonised sport has gone a long way towards spoiling it.
I’ve been one of the advocates of replacing the financial instabiity of capitalist usury (its rents payable ultimately only by printing borrowed money) by a constitutionally controlled rationing of a money supply proportional to population and a similar limitation and distribution of a prize fund. The inspiration for this came from John Ruskin’s 1860′s book “Unto This Last” (i.e. not the 1%, who tried to surpress it and would have done if Ruskin had not become wealthy enough to pulish it himself). In it he pointed out how the local clergyman worked his socks off for a pittance of a stipend which the rich of his day could easily afford to give all their locals. Indeed, the motivation for most people lies in having a job worth doing. Ruskin followed this up with another book dealing with the motivation of honourable excellence: “The Crown of Wild Olive”.
It turns out that this is now entirely feasible with a credit card economy, once money is recognised as authorised access to credit and debt is credit actually spent and not yet (or already) repaid. There is no need to allow banks to rent out money even though there is an honourable role for them to keep check of credit-worthiness and the appropriateness of loans for home purchases and business expenditure by continuous accounting for purchases made. This already works, if indeed in parallel with the 1% recycling their borrowing through the banking system as Paul Grignon’s “twice-lent money” in order to acquire a cut of the banker’s rent.
Trust an economist to think the only way of motivating people is in a competition for money!
Right Dave, and if people will work for nonmonetary rewards (instinct of workmanship,to provide customers a better service or product) then they will outperform people who work for money and drive them under. So the road to money is a road to ruin.
In fact – competitions for money are the latest advertising craze. GE promotes competitions for the deveopment of the most sustainable innovations….$100,000 X ten winners plus 10million for an established company “winner”.
My only question is, whilst widely publicised for GE and GE looks good….(dont forget all that free or cheap advertising if there is a semi final etc) – who owns” the idea” at the end of the day. Is it the competition funder or the innovator/ winner?.
Is it a cheap way to a) advertise b) acquire new innovations from the real entrepreneur??
Hmmmm – competitions Im not so sure.
As I see it, the competitions should be for doing whatever we are doing well, creating and beautifying things we need, and where we don’t already know what those are, solving problems or inventing things which meet a need.
I agree, Alice, not competitions for money as now understood, but possibly as licencing credit to free one – much as in another way university degrees do – to engage in a specific line of business developing the seeds of new ideas. The competitions you mention can be understood that way, but sustainability is ambiguous. In the present system advertising our NEEDING sustainability can be a cover for the 1% WANTING ways to sustain their unnecessarily “making money”.
Alice, we are still so at cross purposes I missed your point in this:
” … who owns “the idea” at the end of the day. Is it the competition funder or the innovator/ winner?”
Everybody, given what YOU are not grasping, that mankind has ALREADY supported us enough for us to compete. Sequencing and harmonisation of timescales are everything in the music of life. Of course I appreciate that “things are easier said than done”, as in spelling out a tune before orchestrating and playing it satisfactorily. But unlike physical products, ideas like tunes or bald logical analyses can be “broadcast”, enabling benefits (or as neo-con misconceptions and misrepresentations have shown, degradation) to be rapidly distributed for local orchestration and playing throughout the world.
Which suggests why orchestrations and performances should be NOT IMMEDIATELY broadcast. Communities competing in these should try out results on themselves, honing and practicing their performances before inflicting them on the rest of the world, and honouring those like Christ and Keynes who re-orchestrated a bad tune to create scores of beauty. Not that those who have never experienced these “live” are likely to appreciate this (or my analogy!), given the cacophony of “pop” they have now been habituated to. Which is good reason for trying to devise a better tune.