[Ip-health] The economist on Prizes for Innovation

[Ellen 't Hoen]

All shall have prizes
Mar 1st 2007 | NEW YORK
>From The Economist print edition


Will a boom in philanthropic prize-giving change the world?


TYCOONS gathering this weekend at Google's Silicon Valley headquarters will
be giving money away, not trying to make more. Larry Page, one of the searc=
h
firm's founders and, with a personal fortune estimated at over $14 billion,
one of the world's richest 33-year-olds, is holding a fundraiser for one of
his favourite charitable causes, the X Prize Foundation. The foundation is =
a
force behind one of the most intriguing trends in philanthropy: promoting
change by offering prizes.

It has worked before. The chronometer was invented to win an 18th-century
British government prize. Charles Lindbergh flew the Atlantic to win $25,00=
0
offered by Raymond Orteig, a hotelier. That inspired Peter Diamandis, the X
Prize's creator, to offer $10m for the first private space flight, won in
2004 by SpaceShipOne.

In October the foundation launched its second prize, for genomics: $10m to
the first inventor able to sequence 100 human genomes in ten days. In the
same month Mo Ibrahim, a Sudanese mobile-phone entrepreneur, endowed an
annual prize of $5m plus $200,000 a year for life for former African leader=
s
reckoned to have governed well. Last month a British entrepreneur, Sir
Richard Branson, launched the Virgin Earth Challenge, offering $25m to the
inventor of a commercially and environmentally viable method of removing
greenhouse gases from the atmosphere.

The Rockefeller Foundation has recently formed a partnership with
InnoCentive, an entrepreneurial website, to offer financial rewards to
people who solve specific social challenges posted on the site. The $1.5
billion Advance Market Commitments, recently put up by a group of rich
states and the Bill and Melinda Gates Foundation to stimulate the productio=
n
of vaccines, is a prize of sorts.

And if this weekend's event goes well, the X Prize Foundation plans to add
to the boom by announcing a further ten prizes worth $200m over the next
five years, in areas ranging from space and medicine (again) to education,
energy and entrepreneurship. This spring, a further X Prize for the creator
of a super-efficient car is likely.

Matthew Leerberg of Duke University, points out* that prizes are more
commonly based on recognition of past achievement (such as the Nobel
awards), or promote awareness of causes favoured by the donor.
=B3Incentivising=B2 prizes, by contrast, stimulate achievement of specific
goals. That has big attractions for businesslike philanthropists such as Mr
Page. This new generation of donors believes that traditional philanthropy
is hugely inefficient. On past experience, Dr Diamandis reckons that a priz=
e
means =B3ten to 40 times the amount of money gets spent=B2. Transatlantic f=
liers
spent a combined $400,000 to win $25,000 from Mr Orteig; the 26 teams
competing for the $10m spaceflight prize spent $100m.

Dr Diamandis says Mr Page's fundraising efforts offer even greater leverage=
:
=B3Larry says that if he were to give to a university, he'd get about 50 ce=
nts
on the dollar of value, maybe $2 if there are matching funds. But he gets
ten-times leverage by launching a prize, and 100-times leverage by
supporting a prize-giving organisation.=B2 Prizes may also stimulate those
whom old-style grant-making processes fail to reach, such as people outside
mainstream research institutions and corporate life.

It can go wrong: prizes, such as that for honest government in Africa, may
be too small, given other incentives. The criteria need to be clear and
sensible=8Beasier in science than in woollier areas such as social policy. =
The
efficiency of a car engine can be defined in terms of a miles-per-gallon
equivalent. But, as the X Prize Foundation may soon discover, coming up wit=
h
a clear, testable and useful challenge in, say, education is tricky.
Developing rules for such tricky prizes is one reason why the foundation
needs $50m for its running costs, which will support a staff of 40 =B3prize
experts=B2 who will identify suitable prizes, write the rules and try to
generate public excitement.

Even clear rules and a big prize may not deliver the desired result. From
1994 to 1999 the Rockefeller Foundation offered a $1m prize for a cheap,
reliable test for sexually transmitted diseases. The offer expired without
being claimed. Sir Richard describes the chances of the Virgin Earth
Challenge being won as =B3less likely than likely=B2. And yet, he says, if =
the
prize is won, =B3It will be the happiest day of my life, the best cheque I'=
ve
ever written.=B2



*=B3Incentivising prizes: how foundations can utilise prizes to generate
solutions to the most intractable social problems=B2. A working paper by
Matthew Leerberg for the Duke University Foundation Research Program.