Using awards and price money as an incentive to foster research and innovation is an increasingly growing trend. The ECONOMIST recently had a nice article (Aug. 5th, 2010) with a graph that plotted the strong increase of award money out there for clever problem solvers.
This is a nice proof of importance for our own research at RWTH-TIM on idea contests (project: OpenISA), broadcast search (project: FVA), and using problem platforms as an innovative means of technology transfer (projects: Matrix, Nanocom).
In this context, it is important to differentiate between incentive prices and accomplishment prices. The latter are given for past achievements, like the Nobel price as the most prominent example.
Incentive prices are different. Their idea is to spur new innovation within a directed field. As the Economist observes:
"A study led by Liam Brunt of the Norwegian School of Economics scrutinised agricultural inventions in 19th-century Britain and found a link between prizes and subsequent patents. The Royal Agricultural Society awarded nearly 2,000 prizes from 1839 to 1939, some worth £1m ($1.6m) in today’s money. The study found that not only were prize-winners more likely to receive and renew patents, but that even losing contestants sought patents for more than 13,000 inventions."
But at the same time, and not mentioned in the article, incentive prices also can serve as a great measure for transferring existing knowledge. Often, people submitting a solution on a specific problem broadcast already know the solution (as the now classic study on InnoCentive by Karim Lakhani and Lars Jeppesen found). But as they have developed their knowledge in a different domain (be it a different industry, a different field of science, or a different region, language or culture), it has been unknown to the problem owner. By participating at the incentive price, the solver transfers the potential solution to the seeker, instead of the regular way of a problem owner to search for an own solution.
While the article in the Economist focuses on the advantages of this system from the perspective of the solution seeker (i.e. the party announcing the problem and awarding the money), there however is a larger problem behind this mechanism for basic research:
Basic research depends on the availability of "risk" money that allows a research not only to conduct the research in the first place, but also to fail (without the obligation to repay the grant back). Failure is the mother of invention. Only if there remains a system that also funds failure, in the long run innovation will take place.The recent trend (more in the US than in Europe, however) of research foundations and grant institutions to use incentive prices to award the "best" finalized research instead of providing grants to perform this research, is just a weak signal on a coming change.
But to dissimilate and exploit the fruits of such an exploration, incentive prices are a great new measure. Also for companies to look out of the box and get access to innovative thinking and research from others (open innovation), this is great news.
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