Summary

As one of their measures to promote innovation, governments and private parties have periodically awarded prizes not only for recognizing original technical achievements but also for solutions to predefined scientific or technological problems or demonstrations of the feasibility of specified unprecedented accomplishments. The latter, known as inducement prizes, have played a role in advancing commercial aviation and maritime navigation, solving mathematical problems, and in a few other arenas. Inducement prize contests are clearly not well suited to all research and innovation objectives. But through the staging of competitions they are thought to have in many circumstances the virtue of focusing multiple group and individual efforts and resources on a scientifically or socially worthwhile goal without specifying how the goal is to be accomplished and by paying a fixed purse only to the contestant with the best or first solution. Inducement prize contests with low administrative barriers to entry can attract a diverse range of talent and stimulate interest in the enterprise well beyond the participant pool. The limited historical experience and theoretical literature suggest that the success of prizes in these respects depends on the choice of targets and design features as well as the administrative competence of the sponsor.

A 1999 National Academy of Engineering (NAE) workshop and report renewed interest in the use of inducement prizes after a period of relative neglect. Since then the Defense Advanced Research Projects Agency (DARPA) and National Aeronautics and Space Administration (NASA) have instituted prize contests to further their missions. A private



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Innovation Inducement Prizes: At the National Science Foundation Summary As one of their measures to promote innovation, governments and private parties have periodically awarded prizes not only for recognizing original technical achievements but also for solutions to predefined scientific or technological problems or demonstrations of the feasibility of specified unprecedented accomplishments. The latter, known as inducement prizes, have played a role in advancing commercial aviation and maritime navigation, solving mathematical problems, and in a few other arenas. Inducement prize contests are clearly not well suited to all research and innovation objectives. But through the staging of competitions they are thought to have in many circumstances the virtue of focusing multiple group and individual efforts and resources on a scientifically or socially worthwhile goal without specifying how the goal is to be accomplished and by paying a fixed purse only to the contestant with the best or first solution. Inducement prize contests with low administrative barriers to entry can attract a diverse range of talent and stimulate interest in the enterprise well beyond the participant pool. The limited historical experience and theoretical literature suggest that the success of prizes in these respects depends on the choice of targets and design features as well as the administrative competence of the sponsor. A 1999 National Academy of Engineering (NAE) workshop and report renewed interest in the use of inducement prizes after a period of relative neglect. Since then the Defense Advanced Research Projects Agency (DARPA) and National Aeronautics and Space Administration (NASA) have instituted prize contests to further their missions. A private

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Innovation Inducement Prizes: At the National Science Foundation U.S. foundation has been established to award prizes for private travel to space, automotive fuel economy, genetic sequencing, and other objectives. Legislation is pending in Congress to authorize the Department of Energy (DOE) to award prizes for advances in hydrogen fuel development. And the FY 2006 Science, State, Justice, Commerce and Related Agencies Appropriations Act (Public Law 109-108) directed the National Science Foundation (NSF) to use available funds to establish an inducement prize program and to engage the National Academy of Sciences in its design. The committee believes that an ambitious program of innovation inducement prize contests will be a sound investment in strengthening the infrastructure for U.S. innovation. Experimental in its early stages, the program should be carried out in close association with the academic community, scientific and technical societies, industry organizations, venture capitalists, and others. The legislative mandate nevertheless poses a substantial challenge to NSF. The agency sees itself and is seen as working primarily through the competitive award of grants to academic scientists and engineers for self-initiated proposals about how to advance basic knowledge of natural and social phenomena. It has limited experience in supporting innovations intended to solve societal problems and no experience in administering innovation prize contests. Provided, as Congress stipulated, that the objective of promoting innovation is interpreted broadly to focus on high risk/high payoff research projects with ambitious scientific and technological objectives rather than narrowly on commercial or near-commercial innovations, the committee recommends that NSF embrace this challenge as an opportunity both to advance science and engineering and to learn a great deal more than we now know about what may prove to be a valuable mode of support for research and innovation. AN EXPERIMENTAL PRIZE PROGRAM The committee recommends that the agency take an experimental approach to implementing its congressional directive to award such prizes, especially during the program’s formative period. By an experimental program we do not mean that prizewinning would necessarily entail use of experimental methods nor that the program would be set up as a rigorous scientific experiment with appropriate controls. Instead, the program should be conducted with careful attention to evaluation, measurement, and use of feedback about the program itself. There is much to learn about how to determine the appropriate goals for inducement prizes, set the terms and conditions under which prize contestants participate and winners are recognized, establish an appropriate time frame for award of a prize, and decide whether and how to partner with or

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Innovation Inducement Prizes: At the National Science Foundation outsource prize administration to nongovernmental entities, among many other issues. NSF certainly has the capacity to make good use of this learning opportunity. In the program’s initial phase NSF should offer several small-scale prizes ($200,000 to $2 million each) in diverse areas that differ regarding prize scope and scale, contest duration, engagement of outside groups, and other features. The committee believes that NSF could award three or four such prizes in the first two years of the program and one or two each year thereafter. The annual cost of this component of the program, excluding administrative expenses, would be in the range of $800,000 to $8 million initially and perhaps $400,000 to $4 million each year thereafter. Simultaneously, NSF should commence planning for much larger awards ($3 million to as much as $30 million) to encourage more complex innovations, well beyond the state of the art and addressing significant economic, social, or other challenges to the United States. NSF could conduct a major prize contest every few years. Designing such a contest may require one to three years of preliminary planning and consultation and the competition itself could extend over 5 to as many as 10 years. The award budget for this component of the NSF program could range from $5 million to $50 million annually at steady state, depending on the number of contests. For branding or public recognition purposes it may be desirable to use different titles for the two sets of prizes. ADMINISTERING A PRIZE PROGRAM NSF should assume primary responsibility for developing, communicating, implementing, and evaluating this program through a dedicated program staff, perhaps designated as the Office of Innovation Prizes (OIP), with its own appointed advisory committee. NSF should seek “no-year” congressional appropriations, in addition to its request for current year appropriations for its research and education mission, to pay for the prize awards. No-year budget authority would help ensure that funds for large prize awards accumulate and remain available until multiyear contests are completed. While initiating the first series of prizes, NSF should seek legislative authorization for the program, allowing the agency considerable latitude in administering it. Such authorization could require periodic reporting on the program’s status and progress to Congress and the general public. There are many ways that NSF could make full use of the interests and capabilities of other federal agencies and either nonprofit or for-profit private sector entities. In some cases it may be desirable for NSF to partner with another agency to award a prize related to that agency’s portfolio (e.g., energy supply, environmental protection, public health,

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Innovation Inducement Prizes: At the National Science Foundation supercomputing). NSF should consult widely with professional, technical, and amateur societies, industry associations, entrepreneurs, early-stage investors, industry research organizations, and others in identifying appropriate prize topics and reaching out to potential participants beyond NSF’s traditional academic constituency. Communicating in advance with the potential range of applicants can help determine how to motivate participation. On a case-by-case basis there may be important benefits to NSF in contracting with one or more external organizations to assist in the design and conduct of a prize contest. These assets could include deep knowledge of a technical domain and its community of researchers, ability to raise funds to supplement prize awards, and expertise in marketing and branding. To maximize the learning opportunity represented by the prize program, NSF should engage one or more external evaluation teams to track the program’s development and near-term impacts from its earliest stages. In the early years it would be clearly premature to attempt to determine whether NSF had accomplished the prize program goal of producing significant innovations for the nation. Instead, a formative evaluation strategy would focus on whether the program is attracting large numbers of contestants more diverse than NSF’s largely academic constituency, whether private funds are forthcoming to support contestants and from what sources and for what reasons, what spin-off activities result from contests, whether public awareness of innovation or the goal of a particular prize is enhanced, and whether NSF’s public image is affected by its sponsorship of prize contests. In addition to these short-term impacts, early evaluation should also focus on determining what features of the contests seem to contribute to their success or lack of success. NSF should consider conducting a post-prize marketing review to determine what proportion of potential participants was reached and what communications techniques were most effective. GENERAL FORMS AND RULES OF NSF PRIZE CONTESTS For each prize contest NSF and ultimately its director should decide the topic and type of contest, the rules of participation and competition, and the winner. The committee distinguishes between forms and rules that would

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Innovation Inducement Prizes: At the National Science Foundation apply generally to all prize contests sponsored by NSF and rules specific to each contest. In the former category the committee offers the following guidance: Contests should be designed around objectively measurable outcomes to give clear guidance to contestants and minimize the role of subjective judgments and controversy about outcomes. Of the two principal types of innovation inducement prize contests (“first-past-the-post,” in which the award is to the first team or individual who accomplishes a stated contest objective, and “best-in-class,” in which the winner is the team or individual who comes closest to achieving the contest objective within a specified time) the committee prefers first-past-the-post contests with set time limits for both smaller and larger prizes, although we encourage experimentation with both types and with combinations. For example, in a first-past-the-post contest with an especially challenging objective requiring considerable time to accomplish, the award of intermediate best-in-class prizes may spur progress toward the final objective and help sustain public interest. NSF should require registration although not usually prequalification or payment of fees by contestants. To encourage participation the window for registration should be open for some period of time after a prize contest is announced. Registration should identify the sponsoring institution or corporation, if any, the leader and principal members of the team, and their affiliations. The participants should at a minimum acknowledge understanding of and agreement to abide by contest rules, including acceptance of NSF decisions regarding winners. No additional financial accounting and recordkeeping should be required where there is no use of public funds to compete for a prize. As the premier public sponsor of research in many fields, NSF should not bar its own former or current grantees from competing nor attempt to prohibit the use of related grant funds. Indeed, there may be cases where it is appropriate for NSF to combine a grant competition with a prize competition. Contestants should not be required to indemnify NSF for any legal liabilities arising from the research, testing, or commercialization of an innovation developed in pursuit of a prize. Because one of the purposes of an NSF innovation prize program is to strengthen U.S. innovative capacity, it is appropriate to restrict participation to U.S.-incorporated or chartered entities and teams led by U.S. citizens or permanent residents. This rule would allow participation by U.S.-registered subsidiaries of foreign-based companies and by temporary immigrants on study or work visas as team members.

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Innovation Inducement Prizes: At the National Science Foundation Federal employees should not be eligible to lead or participate directly in teams competing for an NSF prize, nor should entrants be sponsored by organizations such as Federally Funded Research and Development Centers (FFRDCs) or Government-Owned, Contractor-Operated (GOCO) laboratories. Federal facilities may be used and federal employees consulted by nonfederal participants if these services are available to all contestants on an equitable basis. NSF should be able to terminate a contest before its announced end date if the objective has been achieved by an entity that did not or, in the case of a foreign entity, could not register to participate. The determination of winners should be made by the NSF director, whose decision on technical grounds should be final. The director should develop a mechanism for appeals of results on procedural grounds. This should be a rare occurrence. The government should not own, control, or influence the disposition of intellectual property developed by contestants in the course of competing for a prize, with the exception that a winner who declines to put the winning innovation into commercial practice or to license it within a reasonable time may be required to enter into good faith negotiations with a willing licensee. If the winning innovation were developed in any part using federal funds, the Bayh-Dole Act would apply. Any participant under consideration for the award of a prize should be required to make a good faith effort to identify other parties’ intellectual property used in the winning innovation and to acknowledge the need for licenses from those owners in order to put it into commercial practice. CHOOSING TARGETS AND CONTEST-SPECIFIC RULES Without question NSF’s most challenging task is selecting appropriate prize topics and crafting prize-specific rules governing the type of contest, size of award, criteria for winning, and method by which winning is determined. The committee considered a number of candidates—nanotechnology self-assembly, chemical sensors for pollutants, “green” substitutes for harmful chemical solvents and reagents, catalysts for converting cellulosic biomass into liquid fuels, advances in computing architecture and performance, low carbon energy systems, and learning technology for teaching science and mathematics—not with an eye toward recommending them to NSF but as a basis for understanding the requirements of this task. We concluded that each of these fields has potential to yield one or more worthy prize contests, but determining the right objective and terms of competition is a difficult job likely to differ somewhat for each contest. The actual selection of topics is well beyond the capacity of a short-

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Innovation Inducement Prizes: At the National Science Foundation term ad hoc committee selected for its familiarity with many fields in NSF’s broad portfolio rather than depth of expertise in a single field or few fields. Moreover, the recent experience of DARPA, NASA, and the X-Prize Foundation confirms that choosing prize topics and writing contest rules requires extensive consultation with experts, affected parties, and categories of potential participants to ensure that the prize goals and objectives relate to important societal needs and opportunities; embody a significant yet achievable advance over the current state of the art and surpass what would be accomplished in the same time frame in the absence of a contest; are clear and understandable to the interested community; and are stated in an objective, unambiguous way so that there is no doubt whether a particular innovation should qualify as the winner. There are today no experts on this process comparable to, say, the experts at identifying research opportunities, framing solicitations for or evaluating research proposals, or for that matter, designing financial incentives for private R&D spending. We believe that topics for smaller-scale, more technical and specialized prize contests can be identified by canvassing specialists in various fields, beginning with NSF’s own program managers and peer review panels and incorporating suggestions from scientific and technical societies, federal laboratories, and industrial research managers. Studies identifying research opportunities and priorities in important fields should also be examined for potential prize topics. For a limited number of candidate topics NSF should convene workshops of specialists intimately familiar with the state of the art in the selected fields and related bodies of practice to define a prize objective and criteria for a winning innovation. For the initial set of small-scale prizes recommended, this process can be accomplished within a year so that contests can be announced late in 2007. For more ambitious prizes a comprehensive systems approach to translating an important societal need into a coherently designed prize goal and specific contest objectives could be helpful. The analysis would identify and describe the principal elements of a complex system, such as carbon-neutral energy supply or an educational system, to locate the critical innovations needed to enable substantial improvements and the obstacles holding them back. These innovations would then become candidates for large-scale inducement prizes. This sort of analysis could be carried out by NSF staff or by expert panels convened by NSF or a

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Innovation Inducement Prizes: At the National Science Foundation contractor, and the results circulated for comment by interested constituencies. The committee’s proposal allows significant time for analysis and refinement before the first major NSF innovation prize contest is announced. AWARDING INNOVATION INDUCEMENT PRIZES NSF innovation inducement prizes should be awarded in a manner conducive to raising public awareness of the importance of innovation to the economy and society. Smaller-scale prizes should be awarded in appropriate venues in ceremonies involving the NSF leadership, White House officials, and members of Congress. Larger prizes should be awarded at events, ideally nationally televised, with participation by contestant sponsors, national political and business leaders, and media figures.