Opinion Editorial

By Dennis Polhill, Alex Schroeder
If one could put $100 in the bank and get back $4000, one would be a fool to not do it. A $10 million prize offered by a St. Louis group has stimulated $400 million in research and development since 1996. Equally important, the X-Prize accomplished in eight years what NASA considered impossible. The contest motivated Burt Rutan to build the world’s first privately funded spacecraft. Space Ship One went into space for the third time on October 4, 2004 to win the X-Prize.

Since X-Prize inception, twenty-four teams strove to be first to send three passengers to a 100 km altitude twice in two weeks. These privately-funded competitors have changed the perception of space. By reducing the cost of access, the X-Prize promises to open the door to many new space industries. In addition to tourism, we may soon see faster computer chips, perfect ball bearings, and time-release insulin manufactured in the zero gravity of space. Even more exciting possibilities are likely.

The concept of “inducement” prizes illustrated by the X-Prize is not new. In fact, prizes contributed significantly to the framework of early aviation. The most notable example is the prize that inspired Charles Lindbergh’s famous 1927 Atlantic crossing.

In 1714 the British Parliament sponsored a prize to solve the problem of calculating longitude. Isaac Newton proclaimed, “It is the only problem that ever made my head ache.” John Harrison, an English peasant, solved the longitudinal positioning puzzle by making advances in physics.

The effectiveness of inducement prizes is being noticed. The National Academy of Engineers was commissioned by Congress in 1999 to study the use of prizes to complement existing systems of contracts and grants. The commission recommended implementing inducement prizes for federal research. The Defense Department reacted with the DARPA Grand Challenge. The Challenge is designed to advance automated vehicle technology that may one day save the lives of military personnel. NASA’s Centennial Challenges Program will offer several “inducement” prizes.

Aerospace success with prizes is the tip of the iceberg. Prizes have proven to be useful due to their many inherent advantages. The astonishing leverage demonstrated in both dollars and time cannot be ignored. Additionally the X-Prize has served to demonstrate the viability of space markets. Twenty-four-teams-competing for the Prize shows that many believe in the future of space. X-Prize moved mental attitudes from “whether” to “when;” from doubt to certainty.

Prizes efficiently fund research and development because they automatically back the “winner,” rather than having to choose between contestants early in the process, as research grant awards must. In addition teams that do not win the prize may hold the technology that prevails in the market. The “Betamax” was first to the market, but VHS came to dominate the video tape market due to superior technology. It is evident by John Harrison’s successful quest for the Longitude Prize and shows that inducement prizes succeed partly because of non-traditional thinking. Harrison’s resume could not match Newton’s, but Harrison solved a question that stumped one of the world’s greatest intellects.

The ability to attract public attention can be another important benefit of inducement prizes. The public interest gained by X-Prize has helped to change public attitudes about space. The notion that space access should be a monopoly controlled by government has collapsed. Richard Branson of Virgin Atlantic Airlines has contracted to purchase five space vehicles from Rutan for $100 million to be delivered by 2007. Similarly, within three years following Lindbergh’s flight, the number of airports in the United States doubled and airline passengers increased by 3000%.

Considering the enormous benefits of inducement prizes, the fact that they were largely forgotten for half a century is surprising. Modern famous prizes are more of the Nobel Prize kind. These are known as “recognition” prizes, because they recognize an after-the-fact occurrence. They award accomplishment, but do nothing to set the agenda. Inducement prizes focus great thinkers on problems that need solving and reward their achievement.

Many great creative geniuses await the challenge. Inducement prizes can provide the needed incentive to solve the worlds many waiting problems in energy, transportation, resources, and medicine. It is within our grasp to improve the quality of life for people everywhere. All that is needed are more aggressive efforts to employ the leverage that inducement prizes offer.

For more information read Independence Institute Issue Paper: Application and Administration of Inducement Prizes at http://i2i.org/articles/IP_11_2004.pdf.

Alex Schroeder is a graduate student at the Colorado School of Mines and works with the Colorado Energy Research Institute.

Dennis Polhill is a Senior Fellow at the Independence Institute.