Saturday, April 26, 2008

Slate on Prizes

In my earlier post on the PETA chicken meat prize, I noticed another Slate article that asks the question Should the government start handing out prizes for science breakthroughs? The discussion is framed in the classic economic political and academic controversy over inefficiencies in the existing patent system in encouraging certain types of socially beneficial innovations. (See the articles in the "Papers" section - and their references - on the right for much more of this). The article mentions the Sanders bill to replace patents with prizes, a wholesale change that I think would be very risky and have a lot of obvious drawbacks.

Prizes have great advantages in particular situations, especially, as we've seen, prizes targeted towards specific, well-defined and well-chosen innovation objectives. I think they'd lose most of their benefits in a wholesale replacement like the Sanders proposal.

The Slate article's author seems to have a similar opinion:

The successful prizes—that is, those that found a winner—tended to have a few features in common. They were usually for solutions to specific, clearly defined problems, rather than being part of a blanket system to reward all innovations. They also allotted a generous amount of time for the feat to be accomplished before the prize expired (if it expired at all); they offered high rewards that presumably outweighed the costs of research as well as the profits that could be earned from diverting resources into alternate endeavors; and they were high-profile, guaranteeing the prizewinner fame as well as fortune.

I doubt that the rewards outweighed the costs of research and opportunity costs if you're just considering the monetary prize, but combined with other parts of the reward (the fame, the move towards a business, the fun etc), that must have been true, or at least expected by the competitors. I agree with the rest of the excerpt above without similar qualifications.

The Slate article concludes with a recommendation that doesn't try to kill the patent system, but rather that gives the innovator a choice to go for the patent (with the resulting monopoly that has a cost for society) or accept a prizes in exchange:

The good news is we don't need to punt the whole patent system to promote research for neglected diseases or other worthy causes. Instead of setting up an industrywide prize system, a few reputable charities (or a government agency with a brilliant PR team and an ironclad escrow account) should offer attractive prizes for solutions to carefully chosen problems. After all, if a malaria-vaccine prize could match or even surpass the expected profits for a weight-loss/hair-growth/allergy drug, companies would follow the money. And if the prize were given on condition of forgoing a patent, the drugs could still be manufactured royalty-free.