Prizes as mechanism to fund innovation: We all lose

Published on RWER Blog, by Dean Baker, Sept. 8, 2012.

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 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.
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Links:

Photographer Fatigue: The Absurd Quest for Euro Crisis Images, on Spiegel Online International, by Friederike Ott, Sept. 7, 2012: Two years ago, when Greece’s future in the euro zone was in serious doubt for the first time, Julian Stratenschulte showed how brittle the currency really is. He took a hammer and whacked a Greek one-euro coin. His first blow sent the central segment with the silver owl spinning out of its casing. “It was easier than I thought,” he recalls. Scores of media outlets published the photo …

Honey of the Revolution: An Interview with Rosangela Orozco, Member of the Alexis Lives Foundation (Fundación Alexis Vive) in Venezuela – Published on UpsideDownWorld, by Susan Spronk and Jeffery R. Webber, August 13, 2012: Rosangela Orozco, who is affectionately known as “La Chiqui,” is a young militant from the Caracas barrio 23 de enero and a leading organizer with the Gran Polo Patriótico (Great Patriotic Pole, GPP) …

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