Prize systems

In a conversation with a former IPE student the other (by the name of Dane Davis -- some of you may know him), the issue came up of whether health reform will curtail innovation in the health industry (leading to fewer new drugs, etc.). Interestingly, we soon found ourselves discussing the "prize system" mentioned by Stiglitz (and in another context by Thomas Pogge, for those of you who have taken certain courses in the Poverty program).

I have suggested for a couple of years that I expect this whole "prize" idea will soon be going "mainstream" as a way to attack complex social conundrums, ranging from infectious disease prevention to malnutrition to educational attainment, etc. As a recent example, you may recall SpaceShipOne (beware more corny music). There are other examples.

In some ways, this would seem to be more efficient than having governments and foundations provide grants, and then have the grantees report on the findings. Instead, the prize system promotes innovation by paying for demonstrated achievement. In economic terms, I suppose, for an output rather than for inputs.

Of course, there are many arguments against these, as well. Prizes would not be a perfect substitute for government action in some areas, because government is of a scope and scale that is far greater than any single corporation, making very large-scale investment at least feasible -- setting aside whether one things it is desirable. But it remains something to think about... and, I would argue, to watch for...