[Ip-health] NYT: Prizes With an Eye Toward the Future
krista.cox at keionline.org
Wed Feb 29 07:37:33 PST 2012
FEBRUARY 29, 2012, 7:00 AM
Prizes With an Eye Toward the Future
By TINA ROSENBERG
Fixes looks at solutions to social problems and why they work.
Last week, David Bornstein wrote about how the Obama administration is
using prize competitions to solve some of the problems government faces.
Agencies as different as the Department of Labor and NASA are recruiting
ideas from the public by offering prizes for solving challenges.
While solutions these prizes generate are often innovative, the practice of
offering them is anything but new. In 1714, the British government offered
a prize of £20,000 to the person who found a way to accurately determine a
ship’s longitude. As described in the book “Longitude,” the Yorkshire
carpenter and clockmaker John Harrison won the prize after decades of work
by inventing a clock that worked at sea. Harrison’s solution
revolutionized the maritime world.
Charles Lindbergh won the $25,000 Orteig prize for making the first nonstop
flight from New York to Paris. Canned goods, margarine, the commercial
hydraulic turbine, machines to saw marble, fire extinguishers and thousands
of other products were invented in response to prize challenges.
Charles Lindbergh in front of his plane, The Spirit of St. Louis, on the
eve of his trans-Atlantic flight to Paris on May 19, 1927. He won a $25,000
prize for his accomplishment.
Prizes for the solution of a specific challenge have spurred innovation for
centuries — hundreds of them are listed in this paper by Knowledge Ecology
International, a Washington-based group that campaigns for managing
knowledge equitably. Prizes were so important that in the mid-1800s that
there was a serious campaign in the United States to replace the patent
system with prizes, a proposal endorsed by the New York Times editorial
page several times during the early 1850s.
Prizes began to fall out of favor in the late 1800s, says Karim Lakhani, an
assistant professor at Harvard Business School who studies prizes; that era
saw the rise of research labs and companies deciding that they could handle
innovation in-house, with Bell Labs becoming the model. Today, the
best-known prizes are those awarded not to stimulate innovation towards a
specific goal, but for past achievement, like the Nobel Prize.
Now prizes that look to the future are back. A report by the consulting
firm McKinsey found that before 1991, 97 percent of the prize money offered
took the form of prizes for past achievements. Since then, 78 percent of
new prize money has been offered for the future solution of problems. It
is being offered by corporations, governments and especially nonprofit
groups, which now make up the largest source of prize capital.
The change has come in part because of a flood of new philanthropic money
(a lot of it from the tech sector) wielded by people looking for different
ways of doing things, and because of a growing impatience with the
limitations of in-house research and development and giving grants. The
world brain pool has also never been larger. Not only are there more
people than ever with educations, especially scientific or technical
educations, but the walls that used to divide smart people have broken down
— Russian and East Bloc, Indian and Chinese scientific minds now work with
scientists in the West.
One example of the classic pay-for-success model is the Ansari X Prize,
introduced in 1996, which offered $10 million to the builder of a private
reusable passenger spacecraft that could go into space and land back on
Earth safely twice in 10 days. Mojave Aerospace Ventures claimed the prize
in 2004. The prize helped spawn a new industry in commercial space
travel. The X-Prize foundation now offers similar prizes for other
achievements. If you know how to build a car that gets 100 miles per
gallon, or can design a rover that sends back pictures from the moon, get
Another model combines smaller prizes for promising ideas with big prizes
for success. The Gates Foundation’s Grand Challenges Explorations
initiative, for example, gives out $100,000 grants for interesting but
unusual ideas for solving health problems the foundation sets out: like
finding cellphone-based ways to increase vaccination rates, or creating the
next generation of sanitation technologies. Entrants need only submit a
two-page write-up of an idea. The money finances research, and if a
project succeeds, it can win a prize of up to $1 million. Since 2008, the
foundation has awarded prizes to 602 researchers in 44 countries.
Another big impulse toward prizes comes from the rise of new forms of
collaboration and new marketplaces on the Internet. What eBay does for
buyers and sellers, companies like InnoCentive do for problem solvers.
InnoCentive got its start as e.Lilly, an innovation unit inside the drug
company Eli Lilly. Now it’s a marketplace where hundreds of companies
post problems and a reward amount, and 250,000 solvers around the world get
to work. Can you invent a no-contact way to weigh pigs from a distance?
You can win $50,000. Have a method for reducing fat absorption in
battered fried foods? Can you find a more ecologically sustainable
material that mimics wood? There are prizes for that, too.
While awards for past achievement can spur innovation — a significant
amount of American investigative journalism might not take place without
prizes like the Pulitzer — forward-looking prizes for specific challenges
are far more efficient. They are extraordinarily cost-effective. Look
at Harrison and his clock: the £20,000 he won was enormous for him, but it
was a tiny sum compared to what the British government might have spent to
solve the longitude problem by giving grants to various astronomers or
cartographers. The fact that prizes pay only for success also makes them
attractive to those who finance them, whether they are taxpayers,
shareholders or charitable donors.
More important, prizes work where other methods do not. A lot of problems
aren’t new — someone has already solved them or has solved something
similar. By casting a very wide net, prizes find these people.
Related More From Fixes
Read previous contributions to this series.
Winners tend not to be the people you expect. The principal scientific
adviser to the Board of Longitude — someone to be reckoned with, as it was
Isaac Newton — had said that the only solutions possible for the longitude
problem would come from astronomy. No one thought the answer would be
found in a new kind of clock. If the British had spent money on grants to
the usual suspects, it would have been wasted. The conventional wisdom is
that if you want to solve a molecular biology problem you ask only
molecular biologists. Big mistake.
At Harvard Business School, Lakhani led a study of hundreds of scientific
problems posted on InnoCentive. These were problems that the laboratories
of science-driven companies had mostly failed to solve, which is why they
turned to InnoCentive. They found that InnoCentive’s network solved nearly
30 percent of them.
What made for success? InnoCentive asks solvers to check boxes indicating
the different scientific fields that interest them. The more diverse the
interests of the base of solvers, the more likely the problem was to be
solved. The study also found that expertise in the field of the problem
actually hurt a solver’s chances. “The further the problem from the
solver’s expertise, the more likely they are to solve it,” Lakhini and his
co-authors concluded. If the problem fell completely outside a solver’s
expertise, that raised his or her chance of success by 10 percent. In
addition to being a technical outsider, being a social outsider also helped
— women did significantly better than men, perhaps because they tended to
be more marginalized in the scientific community. Alph Bingham, one of
InnoCentive’s founders, told McKinsey that “you wouldn’t hire” a
significant percentage of successful solvers based on their credentials.
This seems bizarre, but it is consistent with scientific history, which
shows that innovation occurs when knowledge from one scientific discipline
is applied to another. “Innovation happens when someone comes in from a
different perspective and breaks a problem open,” says Lakhani. “But
rarely do we have mechanisms in place so this happens systematically.”
Prizes provide that mechanism.
Prizes have other advantages. They can correct some of the market
failures in our current strategy for encouraging innovation, the patent
system. Patents reward innovators with a period of monopoly control over
their invention. This means that there is very little incentive to pursue
innovations that don’t promise to be lucrative. To see the distortions
this can cause, look at medicine. Some very serious diseases attract very
little research, because the market they offer doesn’t make expensive
research and development worthwhile. Rare disorders — defined as those
that affect fewer than 200,000 people in the United States — get very
little research, and there are more than 7,000 of them. Other diseases may
be widespread, but mainly among people who can’t pay. Nor do companies
have an incentive to pursue one-off treatments, as therapies that must be
taken every day are far more lucrative.
The reward for innovation — a 20-year monopoly — can also create perverse
incentives. Last year, the Office of Health Economics, a think tank with
connections to the Association of the British Pharmaceutical Industry,
wrote a report funded by GlaxoSmithKline recommending that Britain,
together with the United States, offer prizes instead of patents to spur
the invention of new antibiotics. The problem is that patent holders try
to sell as much as possible before their monopoly expires and generic
competition sets in. The report warned that the patent system was
encouraging potentially dangerous overuse of antibiotics, creating drug
Another market failure in the patent system is that monopoly control can
limit access to a new product. Especially when an innovation is in the
public interest, it’s counterproductive to encourage the patent holder to
price it out of range of most users.
Prizes can help, as they reward innovation without monopoly control. The
World Health Organization is currently studying the use of prizes to
stimulate medical discovery. In the United States, the idea’s champion is
the quixotic Senator Bernard Sanders of Vermont. One of Sanders’ proposal
would create a Medical Innovation Prize Fund, which would offer more than
$80 billion a year in prizes to drugs that are approved by the Food and
Drug Administration— a far bigger pot for drug makers than in previous
discussions of the idea. The prize would replace the monopoly control
that currently rewards pharmaceutical companies — generic competition would
begin immediately. Sanders claims the fund would create $250 billion in
savings annually by bringing down drug prices.
This sweeping bill has zero prospects of passing into law, but a smaller
bill, which would use this system just for new AIDS drugs, might do better.
Since AIDS patients now live longer lives, the number of people on AIDS
therapy in the United States is piling up, and the government bears most of
the cost. With therapy reaching $35,000 a year in some cases, the burden
is growing unsustainable.
“The fact that the U.S. government is running out of money makes things
like this less science fiction,” said Jamie Love, the director of Knowledge
Ecology International. “It’s one of the few things out there that saves
money and expands access at the same time.”
When I was starting work on this column, numerous people wrote to alert me
to creative new prizes. I welcome hearing more about them in comments.
Knowledge Ecology International
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